Episode #3 – Tariffs & Unlocking Your 401(k): Maximize Your Retirement Savings

Welcome to the Millennial Money Moves Podcast. On this episode, Blake and I are talking all things 401Ks. We hope to give you a better understanding of your 401K plan and highlight the importance of the savings vehicle for your financial future.

This content is purely educational and does not tend to be financial advice or financial planning. Please consult your professional financial advisor or tax professional to receive tailored advice to your personal situation.

Babin Wealth Management is not responsible for action taken by listeners based on educational content provided. If you would like to receive personal financial advice, please reach out to Babin Wealth Management directly at babinwealth.com.

Let’s make moves. Welcome everybody to another episode of the Millennial Money Moves podcast. I’m your host Sean Babin and we’ve got the co-host, Blake Van Daney back in the co-captain seat.

Yes, sir.

Good to have you, man.

Feel good to be back.

We missed you on the last episode.

I know.

You always sound good, though. I don’t even think you need me to be honest, but happy to be back and excited for today’s session.

Yeah, man. So today we’re going to be diving into 401Ks.

My favorite.

All about them, what to do with them, how to leverage them, and I’m very excited for this conversation. But before we get going, this whole world and country is just focused on tariffs.

I know.

What is going on with tariffs? And the stock market is going bananas. Some days up 500, some days down 800.

I think there was a stretch where the Dow was down 1,200 points in two days. So I just wanted to take five minutes off the jump, give my input, and ask me some questions if you got them, just kind of from what you’re hearing.

But we’re not going to get political. None of that.

Please don’t.

We’re going to talk to basics. So a tariff is a tax imposed on a foreign country trying to bring goods into our country. And so when you tax goods coming into the country, someone’s got to pay for that tax.

And typically, it is passed on to the consumer. So when something becomes more expensive, the consumer starts demanding less of it. And so when we’re talking about tariffs, what will happen is it slows growth of an economy.

You know, things get more expensive, and when things get more expensive, we stop spending as much. And that’s what the stock market worries about the most, is growth. It’s-

Spending money, baby.

Exactly.

It’s piped in, you know, an estimate of current growth going forward. And so when somebody starts talking about tariffs and slowing the economy down, the stock market hates that.

It hates uncertainty because what it has to do is take into account what these tariffs are going to do and readjust all these companies’ earning expectations.

Pause there, Sean. So are we saying that we’re going to tax foreign countries that want to get goods into our country, correct?

Yeah, so basically countries in the US that want to buy goods or need inputs from foreign countries, those goods would get more expensive if tariffs were levied on them.

Got it. And then you obviously hear the Canadian guy saying, well, we’re going to tariff you back. Yep.

How does that work? What does that look like?

So that means the business relationships that we have with Canada or Mexico, now it gets more expensive for them to buy from us, and therefore the countries in the US are making less off their foreign counterparts.

And then ultimately, everyone that’s shouting and crying about tariffs is using the idea that we, as Americans that purchase every day, are going to really ultimately see the effect of tariffs versus any type of business. Is that fair to say?

Yeah, absolutely. I mean, the companies aren’t going to eat the increased cost. They’re going to pass it on to the consumer.

So if an avocado goes from, you know, sometimes it’s like four bucks or five bucks for two, if it goes to ten bucks for two, I’m probably not making as much guacamole as I used to.

Right.

So that’s the choice we all have as consumers, is if things get more expensive, then we have to substitute.

Oh, and then, I mean, again, I don’t know everything and I only know a little bit about all this, but my understanding is that it’s almost kind of calling a bluff to, let’s say, China, because they rely so much heavily on the US market to purchase a

lot of their stuff. So tell me where I’m crazy, but why shouldn’t we have a tax for them to help generate some income and revenue for our country if we’re buying all their stuff anyways?

Yeah, I think that’s kind of, again, I don’t want to get too political, but it feels like that’s what the administration is saying. It’s like they’ve taken advantage of the US for so long that something’s got to change.

And I also think when you impose tariffs, which again, would be nasty, would make things more expensive, inflation would rise.

Trade war.

But what would happen, but it takes a long time, is those US companies that would rely on China for all the manufacturing would bring it into the US. But that’s not going to happen overnight. That would take years, maybe a decade to happen.

And then you’d have more US production. I think that’s what they continue to say, is made in America, we want to bring everything in house. But that doesn’t happen in the next month.

That would take a long, long time. But at some point, you rip a bandaid off. I don’t know.

Wouldn’t corporations have to buy into it too?

To say, okay, we’ll create jobs, we’ll manufacture in the States, but for however long we can remember, they prefer to do it in foreign countries because of labor laws and prices of goods, right?

Exactly, it’s all cheaper.

It’s all cheaper.

So, yeah, when it comes to your investments…

Bingo, but what is the bow down to the average consumer that has some money in the market, or what should they be thinking?

Head down, close your eyes, keep investing. I love it. The market’s going to react as all these talks happen.

That’s what it does. And what it’s doing is it’s repricing expectations. So, if things are going to get more expensive, companies are going to make less money.

So, that company’s stock isn’t worth as much as they thought it was because that company’s not going to make as much. So, it’s repriced immediately. And that’s what I love about the stock market.

At any given point, that company’s stock represents all knowing information available about that company, and it can adjust immediately when some input changes, like tariffs.

So, if the economy is going to slow down, all these companies are going to make less money, and therefore, they’re not worth what they were yesterday. And so, today, the market goes down. And that is what happens in the stock market.

It reacts to bad news incredibly quickly, and it takes consistent good news to continue to go up. So, don’t let it dissuade you. Head down when we’re talking about your 401Ks.

You’re contributing every paycheck to it. So, if the market’s down, now you’re buying in lower.

And close your eyes for a year or six months, and we’ll move past this, just like everything that comes our way on a political spectrum and how it affects your money. So, I thought that was a great segue to talking about 401Ks. My favorite.

And so…

Well, real quick, just to Sean’s point there for our listeners, I’ll never forget COVID-19. I think for three months, the market was down. Like, I checked my 401K a couple of times, and it was like down 22% for many months because of COVID, right?

Businesses shut down, people can’t spend money. Markets, to Sean’s point, they react, and people freak out. I just kept buying in, right?

My normal deduction, which we’ll get into about 401Ks, and what was it, like less than six months a year, the market was back up 15%.

Yeah, no, it finished that year up 15%.

I think it finished that year up 15%. So, to Sean’s point originally, like, just keep doing what you’re doing.

We reacted to every news story. You never would invest, you just stay out of it. There will never be a day where you go, hey, this makes sense, we should invest today.

Everything’s looking peachy, this country is crushing it. We’re all doing so well. I think now is a good time.

No, it’s a roller coaster ride. I tell all my clients the stock market is three steps forward, one step backward, historically. Three good years followed by a bad year.

Three good years followed by a bad year. If it was the other way, one and three, I wouldn’t have a job. This wouldn’t work.

We wouldn’t be talking about it. All right, man. Well, let’s jump into 401K.

My favorite stuff.

It is Blake’s expertise.

So yeah, I’ll let you start, kind of talk about, you know, your background with working with 401Ks and, you know, who we’re going to focus on today. Who we’re going to talk to today.

And I do want to start by just saying, if you hear the word 401K and you’re like, what the heck is he talking about? I don’t blame you. My first interaction with the 401K was my first job out of school, which I referenced in the first session.

But yeah, I would say myself, about 10 years focused in on 401Ks, it’s a great tool to set yourself up for success down the road.

But ultimately, what it allows you to do is, as you get paid, whether it’s weekly, bi-weekly, semi-monthly, it allows you to tell your employer, I want to take about X amount percentage or X dollar amount out of my check every day and put it toward

my retirement account. What we typically see from a 401K perspective, as far as well, Blake, that sounds great. What are the advantages as an employee?

Well, I mean, of course, Sean, one, kind of setting and forgetting it, but putting money away into an account that you’re really not going to worry too much about in the meantime, but 30 years from now, it’s going to be a pretty significant chunk for

your retirement. But the other aspect is, well, you know, what is the advantage? I mentioned earlier, sometimes your organization or employer will offer a match, but they won’t allow you to get that match unless you put in a certain amount yourself.

So if that is an option in your current companies or organizations plan, and you’re not taking advantage of that, think about that free money you’re leaving on the table, because they don’t owe you it unless you put in yourself.

And that was kind of the whole booming of the 401k idea. But then there’s some questions you can ask. Like, most 401ks today, I would say in another year, every 401k will give you a pre-tax, but also a Roth option.

I think me and Sean may have to do another podcast about should I do pre-tax versus Roth? Because…

Yeah, that’s a hefty conversation.

Spoiler alert, I’m a big fan of pre-tax. But either way, what that’s implying is this money that you’re gonna withhold from your paycheck, do you wanna pay income tax on it today? Or do you wanna pay income tax on it when you retire?

So if you do the pre-tax route, that’s saying you’re gonna not pay income tax on that money today.

So where 401k’s really boomed is that idea is that, well, you can withhold this money from your paycheck and you won’t have Uncle Sam touch it until you need it in retirement.

So now this money’s not getting income taxed, it’s in the investment market for however long it is until your retirement, and it’s growing in the market tax-free as well.

You only pay tax on that money when you try to cash it and get that money in your hand.

Well, vice versa, the after-tax, or what we’ll call Roth, because there is technically, I don’t want to get too crazy here, but there is another deduction called an after-tax deduction.

But the Roth 401k is just saying, hey, every dollar or percentage out of my paycheck, I’m going to pay income tax on it today. So now when you actually invest that money into the market, you’ve already paid income tax on it.

So in the next 20, 30 years, as you kind of just keep putting it in the market and letting it grow, it grows tax-free. But then, ding, ding, ding, when you pull that money out for your retirement, you’ve already paid tax on it.

So it grew in the market tax-free and you no longer owe any taxes on those dollars. Talk to me, Sean, what do you think on that aspect?

No, you’re absolutely right. It all comes down to what income bracket or tax bracket you’re in.

And do you want to basically pay that tax now, knowing exactly what you’re going to pay, or maybe you’re in a high tax bracket, so you want to defer, hoping that in retirement you’re in a lower one.

So I love this, because Blake’s tax deferred, all my money is Roth IRA, Roth money. That was a great history of kind of the 401K.

I want to go through the steps of, you get the job, you become eligible, how do you become eligible, how do you contribute, what investments to pick, how much should I contribute? I want to go through that with you.

Let’s go through each step for the listener, as you just got that job, they’ve just handed you a 401K. Is there typical eligibility rules, or is that really up to the company to decide?

There is what’s called an eligibility period in retirement plans. Now, what that typically means is it’s up to your employer when you can become eligible to participate in a 401K plan.

I’d say the most strict that is allowed is a one-year waiting period, and you can actually put an hours requirement. So sometimes part-time employees have to wait not only a year, but they also got to make sure they hit a certain hours requirement.

So it’s all dependent on your specific job, your specific employer. As soon as you’re coming up to 30 days before that eligibility period, you will now be asked to set your percentage, set your deferral amount.

Maybe it’s a flat dollar amount you want to do every paycheck, or maybe it’s a percentage. But you typically will have to wait that eligibility period.

Do most companies just like fire you an email, say, hey, you’re eligible now. Do you get a phone call kind of? Because this is what I love.

I think it’s so like done under the radar. Like usually, from my experience, you get an email. Tell me kind of what you’ve seen.

Yeah, so there’s laws around it.

Like employees must be notified if there is a benefit, and it typically has to be in writing, right? Like you still see snail mail. It can come in the mail.

There’s been some lenience on electronic delivery if you have a work email that you use every day. So there’s still, but yeah, as an employee, if you’re not aware of it, and your company offers one, something went wrong.

And then if you’re not enrolled, and let’s say open enrollment comes around again, do they let you know about it again, like your eligibility, or is it pretty much like a one and done?

It should be a constant reminder. If you’re eligible, you waited the waiting period, that eligibility period, but you didn’t make any action, you didn’t take any action, you’re technically allowed to enroll at any time after that.

Once you’ve hit eligibility, and you’ve hit what we call an entry date, you are allowed to go in at any point.

Okay, so we’ve gotten the email, we kind of sign up.

Talk to us about the different companies in the mix, because the big 401k providers, some people think it’s through their work, and then they get an email, and it takes them to a different website, and it’s like empower, fidelity, and you’re kind of

Right, it’s a great point.

And so your employer isn’t necessarily going to be holding your money and doing the 401k.

You don’t want that.

And you wouldn’t want that anyways. That’s kind of why retirement law came into play.

It was because, that’s another time, but to Sean’s point, what’s going to happen is most companies will partner with some type of vendor, and they’re going to be what’s called the record keeper or the custodian, and they’re going to actually be the

true provider that holds all the money you’re putting into your retirement account. So although it’s up to your employer to make sure that the custodian or record keeper knows about you and is getting your payroll deductions into them on time,

ultimately, you will be going into some type of vendor platform to see your retirement account. So I think another key thing that people ask a lot and I see a lot, especially in education meetings, when I go out there to new businesses I’ve worked

with is like, well, aside I mentioned the pre-tax Roth is a pretty hot topic. It always comes down to like, well, how much should I put in? Right?

And so now I’m looking at you, Sean, because I think it’s more on an advisor side of thing to answer that than just a 401k guy. But before I let Sean kind of give his insight in his two cents, I always like to say, you know, do what’s right for you.

You don’t want to be cash poor and not be able to buy dinner every week because you’re putting too much in your 401k. But also, it’s that employer. And we didn’t get into that yet, which I’m sure we’ll talk about.

But make sure you look at how much your employer offers you based on how much you’re doing. But yes, Sean, I mean, I know you’ve heard it a million times and probably heard that question of like, how much should I save or what should I be doing?

How do you think of that question?

Yeah, it’s easier said than done. So like our recommended savings rate for any millennial is 12 to 15% of their gross income. Now that does include their employer contribution.

So that’s helpful. So what I tell people straight out the gate is if they’re not doing 10% to their 401k, that’s the goal.

I want everyone doing at least 10%, and if you start at 10, then there’s a really cool feature of a 401k where you can do what’s called an auto increase, and you can have it bump up by 1% each year, and you can set a cap.

So what I tell a prospect or a client is, all right, you’re at 8 now, let’s do 10 and see how that feels, and then every year for the next five years, we’re gonna go from 10 to 15, but we’re gonna do 1% each year, so you’re barely noticing it.

You’re not feeling that at all. So yeah, the recommended savings rate again is 12 to 15% of your gross income, and that’s to hit you, that’s just to get you to where you need to be to retire.

Your 401k, for most people, is your biggest resource to save the most amount of money for your retirement.

So I put a couple numbers together before we came down here just to give you an idea of what retirement needs to look like for somebody starting to save in their mid 20s and late 30s and how much money you’re going to need to have to fully retire at

65. So, and again, retirement is all about what you want to spend in retirement. So I’ve got just a couple examples here.

So if you wanted to spend $10,000 a month, that’s in today’s dollars, in your retirement and you retire at 65, and we’re assuming you live to 90, you’re going to need $7 million to comfortably retire at 65, spend $10,000 a month.

Again, in today’s dollars, that’s probably close to like $20,000 a month in the future.

Depending on when you turn 65, but totally.

And so that’s a huge number.

And so it’s kind of intimidating, to be honest.

It’s super intimidating. And most people go through life with their head in the sand. They don’t understand that that’s what it’s going to take.

So let’s say $10,000 a month is a lot. Let’s say that’s not what you need. I would say the average person, if you’re making $150, $120, depending on house, cars, all that stuff, you may be spending $7,000 a month between all of that.

And so to retire at 65, spend $7,000 a month, again, in today’s dollars, you need $4.5 million to comfortably retire at 65. And again, that’s to not ever work, not need any income from anything else. That’s the number we gotta need.

So we need to turn your 401K on and working, and that’s how we’re gonna turn you into a millionaire. For 95% of people, that 401K is what we’re gonna need to get to $4 million, $3.5 million by the time you retire.

If you can’t hit that goal, just always remember something’s better than nothing.

Absolutely, yeah. And you wanna do at least what your employer’s offering you. So typically on the employer side, they’ll offer a match.

If you participate in this, we’ll match X% up to such and such number. I’m gonna let Blake give a little bit more, but typically what I’ve seen is like it’s 3% across the board is kind of what the new normal is.

Now some people work for great companies that are willing to do five, six, seven. I’ve seen as high as eight. Those are crazy.

That means you do eight, they do eight. That’s 16% of your gross savings. You are going to be A-OK.

Work for that company forever.

It does vary. I would say minimally, I see about a 3% match up to what you’re doing. So if your employer is offering dollar for dollar up to 3%, please make sure you’re putting in 3% yourself, but it can vary.

So it’s important to look at your specific employer, look at those summary plan description, anything regarding the benefit, and really see what your employer is offering. And that should be your baseline.

Then I pause there too, because just because it’s a certain amount your employer offers, doesn’t mean you still don’t want to target that 12 to 15. So don’t just stop because of what your employer offers.

It’s still a great savings tool, and Sean broke down some numbers that are just… It’s intimidating, but there’s no way else to get there without starting today.

Correct. I mean, that’s the reason why 401Ks are so prevalent for our generation versus our parents, because they live in the pension world.

They were, you know, hey, you worked for us for so many years, we’re going to guarantee a monthly paycheck for you for so long. And so now they’ve put it on our backs.

So now it’s up to us to save and they’re willing to help us out a smidge, which I guess is a little better than none.

And we all know the social security saying, like, you don’t bank on social security.

So yeah, the employer contribution, absolutely huge. Take full advantage of that. And again, that goes into account with that total, your total gross saving.

So if you’re doing 10, they’re doing three, that’s you’re doing 13%, which is right in line and perfect. Now, if you’re doing five and they’re doing three, then look into that auto increase number, and you can set it to whatever you want.

But like I said, the easiest thing to do, 1% adjustment every year on January 1st, and you can set a cap on it. So cap it, you know, I tell people cap it at 15.

And that is the easiest way to continue to pay yourself more and more first by not even thinking about it.

And then let’s, on the flip side, right, for high-income earners, you gotta Google for me, it changes every year, but I think the limit in 2025 is $23,500.

Yep.

So you can take a $23,500 deduction, which is the IRS limit, pre-income, or you can also do that as a Roth deduction out of your pay.

For a lot of the high earners out there that can’t do a Roth IRA individually because of their income, those don’t apply to 401Ks.

So if you can’t do a Roth IRA, but your employer offers a 401K, go put $23,500 into the Roth 401K side of things, and that’s always available. That does not tie into those IRS limits as an individual IRA. That’s significant, right?

And again, whether it’s an income, pre-income deduction, for guys like me, I like that, that I can deduct $23,500 from my adjusted gross income, or for those that can’t even do a Roth IRA because of your income levels. Well, guess what?

Doesn’t apply to the 401k.

This gets tricky too, because there’s the Roth IRA for individual retirement account, and then there’s the Roth 401k. So the Roth IRA, if you’re under 50, you can only put in just currently $7,000 a year.

Is that what it is?

Yeah, versus the Roth 401k through your employer, that has that $23,500 max for your contributions, but there is no income limit to it. So that is what people kind of utilize the most for Roth money if they’re making too much.

And if you’re still paying attention, you’re probably thinking, well, does it have to be one or the other? And that answer is no. You can do half and half.

You want to gamble on Blake’s side? Do 50% pre-tax and gamble on Sean’s side, 50% on Roth? We’ll check back in 20 years and see how it goes.

Absolutely, and here’s another thing that people question about is, can I do a Roth IRA and a Roth 401k?

And you absolutely do both. I alluded to it kind of at the beginning, too. Another common question I get when I’m recommending to people about contributing to their Roth 401k, so three-year employer, is, well, if I do my Roth, my company won’t match.

And that is, that’s, I don’t know where that came from, but that is not true. That is fake news.

Fake news. So, if you do your employer, if they didn’t match you because you did Roth. Yeah.

If you did all, if you do Roth contributions to your 401k, again, you’re paying the taxes now for it to grow tax-free, and you take it out tax-free later on in life, they will still match their percentage to you.

But what’s interesting is the employer match is tax-deferred. And that is the only way a company gets the tax advantage of contributing to your 401k, basically, the only way they can write it off is if it’s tax-deferred.

So what happens is you’ll start building up kind of both buckets where your contributions would be all Roth, their contributions would be all tax-deferred. Kind of nice little split or hedge there anyway. Well said.

I would say also to that point…

That’s a common question I get a lot.

And to that point, I mean, hopefully we’re luring you in with future sessions, but that’s a conversation for Roth conversions.

So let’s get back to the basis of what we wanted, right? And from the employee perspective, our listeners hopefully here, and we appreciate you guys and gals. You know, what is the 401k?

You know, what should I be doing, the pre-tax versus Roth? How much should I be saving? We’ve covered that.

Another hot topic that I think is important to cover is vesting. So although your employer is doing a great job and enticing you with maybe a match, which is, you know, you put in, we’ll match that, and we call that free money on the table.

Just keep in mind, employers do have an ability to require vesting, which means that you have to be with that job for a certain amount of years before you are owed 100% of that money.

There’s different designs out there and different type of plan matches that actually may not have vesting, and we don’t need to get into that, but if you’re ever curious, please give me a call. But regardless, it’s important to check that as well.

Not just, you know, is there a match, but also check how long you have to be employed there to get 100% of that amount.

Yeah, and so what’s interesting with the vesting is sometimes their typical payroll contributions to you or that employer match is fully vested, typically what I see.

But then, you know, if you have a profit sharing at the end of the year or some type of bonus structure, that they can really tie some different vesting schedules to.

Bingo.

So great concept. So the next avenue I want to take it to is the investment piece.

Beautiful.

So this is another, again, you’re going to be sitting there alone, signing up for your 401k. You’re going to be, how much should I contribute? Do I do pre-tax or Roth?

What’s my employer doing?

What’s my employer doing?

How long is my vesting?

Yep.

And then the final question, where do you want to put this money?

Bingo. And that’s the key, Sean.

So typically in a 401k, you’re given a handful of options. I would say at the worst I’ve seen is about eight, and at the most I’ve seen is about 35. So you’re kind of in the middle there.

And that’s the world you get to choose from.

Overwhelming when you have no idea anything about mutual funds or investing or what do I pick, and a lot of people go and they look at the rate of returns, and they look at who’s done well, the best over the last 10 years, and then they put all their

What should you be thinking about when you see this investment options and list?

What do you think?

So if you’re not working with somebody, meaning a financial advisor that you could ask this, who could take a look at your investment options and put together some recommendations for you, I tell most people pick those target date funds.

The target date fund has a date on it that lines up to your preferred retirement date. So if you’re in your mid-20s, throw it out 40 years. If you’re in your 30s, throw it out 30, 35 years.

So, you know, we’re looking at what, almost like 2065, 2070. And so what those target date funds are, are very well diversified. They’re a great place to start accumulating your wealth.

It takes you out of the driver’s seat of having to pick the other funds. They’re doing that. They’ve got stocks, they’ve got US.

International, and over time, they make them a little more conservative as you age. Now, that’s the one hiccup I do have with them.

They get too conservative too quickly, but it’s a great place to just start putting money into and don’t think about it. But yeah, when you do start accumulating some wealth in your 401k, I tell anybody over 100k, have a professional look at it.

Say, hey, here’s my options, here’s what I’m doing. Is this what I should be doing? But yeah, starting point, you’ve got the 15 different options there.

Go to the target date funds, pick the one that aligns with your preferred retirement date. That’s kind of my recommendation just to get you going. Now, do I want you to have 200, 300, 400, $500,000 in a target date fund?

If your plan has really crummy other options outside of it, then sure. But typically, there’s enough pieces to the puzzle in regards to other options that you have to be able to pick from.

But that’s really from start to finish from the employee perspective. Just make sure to take advantage of it if it’s there. I can’t express enough.

I mean, I was fortunate that my mom forced me to go into my trunk and pull my employee packet out of my trunk. But, you know, I think I worked about two years at my first job.

And by the time I left it, which I’m segueing into maybe our final part about all this, you know, I had about $15,000 in that two years in an account that I never looked at. But I just knew my mom told me, you need to do this. So it adds up quick.

And that was over two years. You can only imagine if you keep this thing going, even as you switch jobs, which I’m segueing segueing as another hot question. Just keep at it.

Don’t let the market fluctuations fool you. Don’t let tariffs fool you. Just keep keep at it, because in 20, 30 years from now, your future self is going to thank you for it.

Yeah.

So you just segued into a lot of good stuff. So let’s talk about before we talk about what to do if you leave a job.

Great question.

Let’s talk about compounding and just kind of what this money could potentially turn into. So I did some numbers because that’s me. I love this stuff.

So what we talked about was, if you wanted to spend $10,000 a month and retire at 65 fully, our generation is going to need about $7 million. If you wanted to spend $7K a month, fully retire at 65, $4.5 million.

So what is it going to take to get us there? So if you start at 25, we’ve got about 40 years before you hit to 65.

So if you did $15,000 a year on average, that’s your whole life kind of average, at an 8% rate of return, you’re going to have $3.9 million at 65.

That was $15,000 a year.

$15,000 a year.

So that’s your retirement egg.

That’s getting close to that 4.5 number, not quite there. And it just goes downhill from there, guys.

So if you started later, so even just five years later, in a 401k, and you did 5,000 more a year, so $20,000 a year for 35 years, at an assumed 8% rate of return, 3.5 million.

Worst case scenario is like I said, we kind of talked about people just contributing their company’s match, their employer’s match. So they’re making, I just assumed 150k, they’re doing 3%, their employer’s doing 3%.

That’s about $9,000 a year, is what you guys are combined contributing. Do that for 30 years at 8%, it’s only a million dollars. So our generation needs to be multimillionaires.

And that’s gonna be, that’s a interesting thing to hear right now, because our parents that retired with a million or two or three, like they did really, really well for themselves.

For us to do really, really well for ourselves, we’re gonna need four to seven. And that is these mind blowing numbers that you have to start now.

I just showed you, if you waited five years, but you also contributed five thousand more dollars, you’re still half a million in retirement short than starting five years before and doing half, five thousand dollars less per year.

And I always think, like, I remember hearing these in seminars and stuff, even when I was younger, when I got into my first job, and hearing a guy tell me about compound interest, and when they did their 401k stuff, right? It’s true.

Like, it sounds too good to be true, but it is there.

Yeah, I mean, the race is to a million for everyone. The race is to save a million. That’s what I tell my clients, you know, if you can get to a million by 40, only about 15% of people can.

45 is typically doable if you’re doing it right, but we get to a million, and then every decade, your money should be doubling. And this is if you do nothing. So if you’re contributing, it’s gonna do more.

So if we get to a million at 45, then let’s say we’ve got 2.5 million at 55, then at 65, we’ve got that $5 million. So we’re getting closer and closer, but that’s what it is. It’s the race to a million for all of us.

Power of now and compound interest.

Two best friends for us.

All right, let’s go back to the 401k talk, because that’s a huge thing, is I’ve just quit my job, I got fired, whatever the case might be. I’ve got some-

Sorry to hear that. Yeah.

Prayer’s up.

Good luck, you’re gonna land on your feet, you’re great.

What are my options? What am I doing with this old bucket of money that I had there? Where’s it going, what am I doing?

Traditionally, though, what we see, and I know, Sean, you deal with rollovers all the time, but that’s the fancy term is a rollover, which means that, assuming here that you left a job because you’re going to another one, or whatever you may be

doing, but more than likely, wherever you land, and they offer a retirement plan, too. And retirement plans, 99.9% of the time, can accept a rollover, which means you can call your old employer, say, I want my money out, and you can now roll that

into your new company’s retirement plan. So again, options A, you leave it there, B, you can cash it, and if it was pre-tax, you can pay income tax on it, or typically what we see, C, you can now roll that into a new plan with your new employer.

Yeah, so you can leave it, move it, or roll it over. That’s what we tell people. And then, yeah, if you take it, too, and you’re not 59.5, you’re also getting hit with a 10% penalty on that pre-tax.

Or leave a job penalty.

So yeah, we typically, for us as the advisor, it kind of depends on, one, I never think anybody should leave it there, because you forget about it, you lose the login, your typical new employer has a new one.

So our recommendations are you’re either rolling it over to your new 401k, or you’re rolling it over to an IRA or Roth IRA.

Pros and cons, basically, your new 401k is going to be cheaper than working typically with a financial advisor, or if you’re doing it yourself, obviously, that’s free, so you can manage that on your own.

But why I typically recommend to anybody who leaves a job to roll it over into an IRA or Roth IRA is because of the limitations on the investments in a plan.

I personally think I can do better for clients because I have access to all the investment options in the entire universe versus the 15 that are in that fund. You also start accumulating your wealth with somebody who one person is watching over it.

In a 401k, that’s up to you. There is no advisor, nobody making sure that the investment you chose is suitable for you doing what it’s supposed to do. No one is coming to you with recommendations for the 401k.

So again, we look at it as that is a good opportunity, especially if it’s the bulk of your wealth.

Get that into the hands of a professional that can start watching this day to day or month to month versus just continually maybe just checking in on it once a year. So that’s kind of how we go about that advice.

But yeah, if you’ve got six, seven, eight grand in an old 401k, and you just want to roll it over into your new one, go for it. Let’s keep the simplicity there. But if you quit a job, you got 80, 90, 100k in it.

I think that’s worth while going to have a conversation with somebody, because again, just having access to all the possible investments in the universe versus the 15 that are in that fund lineup, in my opinion, is worth it to the end investor to

I couldn’t argue that.

I guess when I said not necessarily do anything, I wasn’t thinking the concept of actually sitting down with a guy like you, right?

I was thinking more as I’m just going to a new job, might as well roll it in, but it’s, you know, if you’re not going to take the time to sit down with someone like Sean, you know, you should still do your due diligence.

He mentioned investments, right? Well, what if your new employer has even more as I like how Sean phrased it, crummy investments? So now you’re going to move your old money into a new plan that has even crumier investments.

So keep an eye on that.

Yeah, there’s a lot of pieces to it, even just leaving the job and what to do with that money. Do not take your money.

Yeah, you should never touch your retirement eggs ever.

Don’t go buy a $40,000 car with a $40,000 that took you for five years to get to or six years to get to.

But that’s the toughest thing, man. You see this accumulated balance and maybe we all have stuff happen in life. If you can avoid using it and just trust it and leave it in the market, it will pay off.

And those numbers he talked, Sean talked about, they’re not just made up. Compound interest is real. We all learned it.

But to see it myself over the last 10 years, it is insane. As our guy Joel Embiid would say, trust the process.

Love it. Well, thanks, man. This was a great conversation on 401Ks.

This is your world. Yeah, I really want to dive next into the pre-tax versus Roth conversation.

And there is an aspect we left out just because I think it deserves its own segment and is the after-tax portion or what you might have heard is the mega backdoor Roth for our high earners out there. Again, that deserves its own episode.

We could go another 40 minutes on just that. So we’re going to dive into that next week. We’ll get rolling.

But yeah, man, thank you. Good seeing you. We’ll talk soon.

Yes, sir.