Retirement 101 | Everything Frugal People Need to Know About Saving For Retirement

we don't talk about investing, so we are. We're making an official today. I don't I still don't know that this is going to be a defining factor for us. Y'all are real responsible wanting to talk about retirement. I'm proud so we're providing for you. So the last time we talked about investing was episode twenty nine. We had a financial planner Andrew Yang Andrew Wing on the show, and we talked about investing for frugal folks, so a lot of low cost, low fee options for your investments,

but we didn't so much touch into retirement. So tax saving strategies which saved you a lot of money now and in the future. So that's what We're gonna get on today's show, but first, our sponsors also brought to you by Florida, Jen's birthplace and home to where all good and right things happen. It's also quite fitting that the southernmost state, this place of sunshine and warmth, decided to sponsor us this week with an official state song titled Old Folks at Home. We can think of no

better supporter as we discuss retirement. Florida, the place Jen lives, the place I want to live, and the place we can all live if we dream big and safer retirement. Yes, all the folks at Home? Do you know it? Do you know it? I looked it up. It's a real thing. It is Florida's national, not national, Florida's state song, Old Folks at Home. You know, I've never heard it, but I have no doubt because this is really where the

old folks come to be at home. There's a line in there that says something like everywhere else I roam is dreary and cold. I just longed to be with the old folks at home. Something like that, And I was just like, Yes, that so resonates with my heart. So as this episode is releasing, Eric and I are actually in Florida pretending to be retired. We're not retired yet, but parking on Gen's property with the old folks at home. Yes, we're spending a month Frugal Friends retreat in Florida. That's

going to be a business, business retreats. Everything, everything that I do for that month is going to be a business right off. And so for my tax and speaking of taxes, you know what, the one of the best tax deductions you can get every year is your deductions for your contributions to your retirement account. There. They just they lower the amount of money that you are taxed each year on certain accounts. And so we're let's dive into retirement. Let's just do it. So our first article

is from Investipedia, because why not. We're talking about retirement, and it's called how much do I need to retire? So this is the big question that a lot of you guys had in our Frugal Friends community on Facebook. So it's the it's the first thing we're going to go over. What did you think of this one? Jill? Really helpful? Uh, we are not gonna lie to anybody here, because we never lie to you. This is Jen's area

of expertise. So for me, I think what they talk about and the information that they provide is very entry level but yet tangible and helpful. So I really appreciated actually both the articles that we covered, uh and I thought really good tips on retirement. Yeah, and I'll prefaces to say that Jill nor I are certified financial planners.

We hold no certifications in any financial industry. So the advice that we give today is meant solely for entertainment purposes and it's what we do and we're just helping friend and get together and talk about what they do. So that is our legal disclaimer the approach for this one. So first, uh, four one k participants, we're asked how

much do you think you need to retire? And the answer that they gave was one point seven million on average, is how much people think they need to retire, And uh, most are not on track to get there even though that's how much they think they need. And I also read a study today that says most most Americans are confident in reaching their financial goals, yet all of them are behind on them and there's are like they're on track.

So while we're confident and we think we know how much we need, we're all behind is basically what that Yeah, and they made a good point about part of the reason for that is this difference between a savings versus an investing approach that most people actually take a savings approach, thinking if I just set this money aside, that's fantastic um on my way, and yes, something is better than nothing, but you're not going to get at that one point

seven million or more unless you are also investing and you're making your money work for you, because savings accounts typically pay lower returns than do investment accounts. So this is where we want to look at, what is our approach. Are we more so saving or are we actually putting in some of the leg work to invest our money so it can grow. Yeah, this mindset thing is so huge because I grew up with the not even a saving mindset, and I think a lot of other people

their parents didn't say, we weren't taught to save. So to make the jump from like not saving to just trying to say and then people come in they're like, oh, now you have to be investing for your retirement and they're and you're like, hold up, let me get through this and then I'll start investing. But if you wait to take the leap, then you miss out on so much. So before you count yourself as a saver and Steve an investor, start to develop the mindset of I invest

I'm an investor. Even if you're just putting money into your four oh one K and it comes out of your paycheck you don't even see it, You're still an investor. So start getting into that mindset. Yeah, I think it's a great point. And also with what you're saying, Jen, the earlier you get on board with investing as in utilizing these different platforms that can grow your money and have higher rates of return, the better off you are. Because you want to take the risks that you can

when you're young. So if you're in your twenties and thirties listening to of this, this is something you really want to go hard at. Now. If you're in your forties, fifties, sixties, you don't want to be taking as many risks with investment strategies. So making that switch early on is crucial for sure. So how much do you need to retire? Specifically, that's the average amount that respondents to this survey said one point seven million. But how do you know what

is right for you? So most experts say it should be about eighty per cent of your final pre retirement salary, and so you don't know what your final preretirement salary is. But you can kind of just add to percent every year to what you're making now and get a prediction of what your pre retirement salary is. And you can do that on a uh online on retirement calculators. It

can do that for you. But basically, if you're making a hundred k at retirement, you need to have enough saved to take out eight thousand per year and have a comfortable to have a comfortable lifestyle. I don't know how much I agree with that as a theory, because you can't predict like maybe you're going to make a lot more money than just two compounded with raises, or

maybe you're gonna make a lot less. Maybe you have to leave the workforce for a medical condition, Like you don't know, um, how much you're going to need in retirement, And that's okay. Um, some people say that you can maybe maybe it's only eight percent because you can take out the portion of your mortgage because hopefully you'll have your mortgage paid off. But then to that, I say, well, you're gonna have a lot more medical costs, so you

might as well just replace that with medical costs. So there's no real real way to pinpoint what you're going to need in retirement. The best hedge we have against it is to live frugally now and just to maintain a lower cost of living in general, to to protect yourself well, and to be actively involved in this process. The article talks about managing your investments and avoiding this set it and forget it mindset of Okay, I'm contributing

to my fur own k. That's it. To really grow this and to make sure that you've got the most amount of money in your retirement savings is and investment is to be paying attention to it and to be evaluating on a yearly basis, what is my salary now? So, based off of that and the standard of living that I want when I retire, how much do I need to be putting aside now? Which can include a percentage, right, like making sure that you're putting aside at least ten

percent into some sort of savings investment for retirement. Yeah, I much more resonate with the goals that say you should save this percentage of your salary and just adjust that by age. So the one they give here is fifty. It says to reach your goal save of your salary beginning in age with fifty invested in stocks. And I did not start at that age, so I have just adjusted um, so I have to save more than fifteen

percent to make up for that. And it's I think I I think I did a calculator and to have one point seven million, I need to invest eighteen percent, which isn't bad. It's just a little bit higher. And I know the younger start, the less you have to invest overall, so the earlier is always better. But also this is stocks, and I'm probably stocks, yeah, And I think that's totally fine for people in their thirties. I

know people that are. I know tons of people that are invested just like that, like stocks all the way up until there, gosh, fifties, sixties. So it's not maybe the best idea, but people do it, so don't be it's a little riskier. You want to ideally make your portfolio more bonds as you get closer to retirement. So they're saying fifty percent stocks, and I assume the other fifty percent would be bonds. It doesn't say what the other fifty percent should be. And so that's another thing,

like I I wasn't raised as an investor. How do I know what the other fifty percent is? M I don't you do the best you can what you've got. Yeah, So I need a simple I needed a simple way to figure this stuff out. So the Simple Path to Wealth by Jail Collins. It's a book we read in our book club last year. That book really helped me define a simple plan for investing. And we're all about simplicity here, and so I highly recommend The Simple Path to Wealth by Jail Collins. And uh, that's yeah, that's

what I follow. And he's definitely in stocks when you're in your thirties, I think. And won't get into this more, but even just breaking down some of the barriers to even understanding these things is helpful. So yes, listening to podcasts, reading books, and teasing through some of the overwhelming or scary or confusing aspects of what this means to be investing for retirement really helps. And and so I think where the merit is in this article is giving some

sort of baseline. Right, So if you just the question of how much do I need, it's a very simple question, it's a very foundational question. But I think it's very telling that that is one of the number one searched questions on the internet. Most people don't know that, so to start somewhere. And so I like these suggestions. But again, as with anything we talk about on our podcast and when it comes to frugality and financial goals, to make it work for you. But yet no, we're kind of

the standard lies. And so I like some of the suggestions. Again, we can play with it, we can make it work for us. But they are suggesting that you have by the time your thirty your annual salary accumulated in savings for retirements, whatever you make in a year. That it could be a goal for you by the time you're thirty, that you have that amount in savings. Of course, if you're listening to this at different ages, the different brackets that they give is that by age forty you would

have two times your annual salary accumulated in savings. By age fifty four times annual salary, by age sixty six times annual salary by age sixty seven, eight times annual salary, So you can see how it kind of continues to grow and grow and multiply upon itself as you get older and older. Hence again starting younger is best, um, but just a guideline, right, these these things where we can say, what's the guideline, what's the blueprint? A place

to start from, so we even know what we're aiming at. Yeah, yeah, And so figuring out what you need to catch up, which is what I had to. I am still not at I'm thirty, and I'm not at my full annual salary, so we are as a couple at my full annual salary, but not individuals. So we're still playing catch up because we had so much debt and we paid it off and and that's going to be the story for a

lot of our listeners to we're all playing catchup. So I think starting with if you can uh and and working your way up, like maybe one more percent every month, and just going at it easy until you get to a place that's stretchy but sustainable. You'll really thank yourself for investing more now, even though it seems difficult. So you might say, I'll just invest a little now and when things free up, I can invest more later. And

that is the opposite approach. You should be taking invest as much now as possible, like to the point where it's uncomfortable. A lot of you who are paying off debt. You know that uncomfortable. You've been there. This is familiar, right, and so even if you even if you prolong that for maybe another year or six months or two years, however long you can sustain it, then let off the gas and and you will be in such a better

place then if you just start to wait. And then if you try and wait, Yeah, don't let this overwhelm you start somewhere and know that, Yeah, Jen, you just shared where you're at. You're still playing catch up. I'm thirty and this year I will finally pay off my debt. And yeah we've got a little bit in savings, but I don't have my full salary in savings yet. So yeah, it's gonna be some catchup for me for the next decade. Yeah, yeah, so all right. There are a few other ways you

can figure out how much to save. A popular one that is in the financial independence retire early is called the twenty five percent rule or the rule of so that it says you should have of your gross salary each year starting in your twenties. Percent savings figure may sound daunting, but keep in mind it includes not only your four one K withholdings, but also the other types

of savings mentioned above. Actually, I don't think that's that's not the fire one that I so the fire Okay, that it doesn't have the one that I was thinking. So I'm going rogue because it's not in the article. So the four percent rule it does have. So the four percent rule is essentially you want to be able to take out four percent of your retirement fund every year because that will mean you can take the money

out and it won't eat into your nest egg. So divide your desire annual retirement income by four percent and that kind of gets you to where you want to be.

They used eighty thousand dollars on this one. So if you make a K at retirement you want to live off of it, that's a d K. So you would need a nest egg at retirement of about two million because eight THO divided by point zero four is two million, and so you can take four per cent of two million every year, which is a d K and lip off that and it will never touch your to your nest egg, so it'll just keep maintaining that. You're you're essentially living off the dividends every year and you never

touched the two millions, so you'll never run out. So that's the four percent role. That's another way to figure

out what you should have saved for retirement. And this strategy assumes a five percent return on investments because after taxes and inflation, that's what you can likely Some people say five, some people say six, but five or six is what you're going to want to use to calculate your investment returns because a lot a lot of people will be like, oh, but the stock markets returning like eight, so I'll calculate with eight percent, or it's calculate it's

returning with twelve percent. Somebody likes to use the twelve percent return on all of his calculation. Who might that be? Somebody really likes. But you have to take into account inflation and taxes and being being conservative, market downturns and stuff like that. So I personally use six. I like to have a conservative, yeah, conservative but optimistic. Oh you just cute. That's what I just call cute, conservative and optimistic.

This is cute, thank you. So yeah, and then the last part of this is how much can you save for retirement? Because saving of your income sounds nice, and saving two million dollars sounds nice, but like, how much can you afford to? So the percentage of income left over and available for saving for workers between the ages of five and seventy four averages eighteen point four percent on a pretax basis, and that is from a study on let's see from Investipedia. So this figure is above

the percent saving formula. And so theoretically fifteen percent is possible for people because that is the difference between average incomes and spending annually, so you should be able to do that. But the figure is well about the fifteen percent savings formula and potentially within the five percent figure

that I mentioned earlier. So the average pre tax percent of income left over after expenditures by age group should be four to thirty four, should be able to save nineteen and then from thirty five to forty four that jumps up to twenty three percent, forty five to fifty

four that jumps up to scent. And I don't know where these getting there getting these numbers where people need to be saving almost of their income or are in college, that is what they have right so like they're probably imagining to fifty to fifty four, you're probably making the most that you will ever make. You would probably have about to be able to save. Okay, So these are

just more numbers from their survey. Like, if you're between forty five and fifty four, then you should be able to save twenty seven percent of your income based on average income for these expenses. If you're not there yet, the best is yet to come. People to fifty four that's the sweet spot for earning potentials because then it does go down. Sixty four goes down and then up until retirement saving eight percent. So that that's what theoretically

the numbers should show. I don't know how much people reading investipdia are making or if they founded normal people, but all that to say is not an obscene number. You should be able to work your budget, makes some extra income whatever to get to and it is the safest number. So there there's a guideline for you. You don't need to be saving sevent of your income or but so that's how much you should be saving theoretically.

Our next article is about where to save for retirement, so it's for Money under thirty dot com and it's the beginner's guide to saving for retirement. So, Jill, if somebody who's beginning to save for retirement, what did you think of this one? Yes, it just felt like a breath of fresh air for me of breaking down all these acronyms, helping you to understand just the basics of

retirement investing and saving. And honestly, my biggest takeaway you you already heard me say on this podcast from this article, was the worst thing you can do is nothing. And to me, that's encouraging, right because we can we can get into all the nitty gritty, we can get into all these different numbers and percentages and acronyms and all the stuff. But at the end of the day, let's do something. The worst thing you can do is nothing, So don't let it be a barrier to taking that

first cup, that first step. Yeah, and we're not here to answer the debate like should you be investing for retirement while you're paying off debt? Because I think that's a really it's a divisive argument and some people want to finish off paying off debt where they retire, and that's fine. Some people want to keep investing while they pay off debt. That's also fine. That The worst thing

you can do, though is wait. So after you pay off debt, then you just do nothing or you get lazy while you're paying You know, doing two things at once and you can't handle things and investing falls to the wayside. Prioritize investing at whatever time it comes for you. So this one goes through a lot of things about investing, but we really want to focus on the different tax

advantage vehicles for you're testing. And if you were with us all the way back in episode, you heard us introduce index funds, and those are funds mutual funds that you'll find in a lot of different investments. So we won't go over those right now. But investing in tax advantaged retirement accounts saves you a lot of money. It saves you. You can line it up so you can save money today this year and then also save money

in the future, and neither is better. You want to have a mix of both if it is available to you. So the first vehicle is your four oh one K or your four oh three B. Four oh one K is an account to that you get through your employer, which is funded through pre tax payroll deductions, and what that means is that you don't have to pay income tax on those deductions. So if you're in a tax bracket, those portions that are in, you get to keep an

extra cents of every dollar invested. Essentially, so that's more money that gets to go into the four oh one K than if you were to get your paycheck and already two cents has gone to taxes, and then you invested it and you'd be just putting seventy eight cents in. So that's kind of that's what pre tax means. You just get more money up front to invest, and then when you retire and you take money out of your

four oh one K, that's when it's taxed. So say you are still if you're taking out enough money that you still are in the tax bracket, you're still going to for every dollar you take out, you only get to keep seventy eight cents of it because of that goes to taxes up top. But you've let your dollar compound and interest for so long that you have a lot more money than you would if you were just

investing seventy eight cents of every dollar. So it's a lot of money UM, and then you just pay that tax later and then the four and three B is the same. It's an account that you get if your employer is UM, educational or a nonprofit nice. We also want to break down what an i RA is, So I loved this simple explanation that an IRA is simply another vehicle for your money, and it stands for an individual retirement account. So this account is not dependent on

where you were. Anyone can open it. So this particularly for you subcontractors, people who don't have these four oh one case four or three b s available within your work environment, absolutely be looking at i RA. So there's a couple of different kinds of iras. A lot of people, even if you do have a four oh one K or four or three B, also utilize an i RA because they offer different benefits that employer sponsored retirement accounts don't.

But they come in different varieties. So you've got your rath ROTH IRA which uses after tax money, You've got your traditional IRA which is tax deductible, and you've got your step I RA A R S C P I RA, which is for the self employed, and it's all it also has some tax advantages. So there's a couple of

different kinds, but essentially another vehicle for your money. Yeah, so the traditional IRA and the step I RA looked just like a four oh one K. The difference between the step I RA and the tricial I RA versus the four oh one K is that your four oh one K is offered by an employer and it has a higher limit. The limit, as we're saying this in is hundred dollars per year that you can contribute if you are under the age of fifty. If you are over the age of fifty, you can put away twenty

six thousand per year. And that is in and that is for our US listeners. I can't say what it is in Canada or anywhere else. Y'all have different tax advantaged retirement accounts. But in the U S where we are at, that is it. And for IRA is the limit is six thousand per year currently, So that is for across all I RA s. So that's where it

gets into wanting to balance the tax advantage. Now tax advantage later is by having both your money in a four oh one K or four oh three B and having a roth ira which is tax now, So you're putting that seventy eight cents now and then you're letting that seventy eight cents grow. But all that money that grows, you don't have to pay taxes on anything in the end, So that actually saves you more money in the end by investing in a roth ira and maxing that out

every year. But it is only a six thousand dollar limit, so hopefully you're investing more than that every year, So balancing that with savings in your four oh one K, because you also don't know what your income is going to be like in thirty years. If you end up and right now you're in a lower tax bracket and you're investing of that dollar, maybe you're in a higher

tax bracket later down the road. You don't want to be paying on those dollars you're pulling out that would favor an i r Well, maybe you're making less and so it's better that you pay taxes down the road than it is for putting all your money in the

rath i rara now. Because things are unpredictable, that's why you want to have a balance between both types of accounts, and usually the order of operations that's most optimal is getting whatever match you can get in a four oh one K, so whether that's three, four or five, then investing in a rath I r A if you qualify, you have to make less than I think it's two

dollars or something similar to that. Don't quote me on that one um, but then you qualify for a raw IRA if you make less than that every year, So then maxing out your raw IRA and then going back to your four oh n K and investing in that up to the cent mark or eighteen or twenty seven or wherever you're at. So that's the order of operations, and people in personal finance kind of agree on that across the board. It's it's not like a polarizing things.

Get your free money, choose your ira A because you don't always get to pick what's in your four oh one K either. It could be a very high fee managed mutual fund, but it's still worth getting the tax advantages. But you may not want to put all of your money in there and forget about the IRA. So get your rath A where you can control it and you can choose all the good funds and then go back to the four oh one K and then there's some

things you can do after that too. Yeah, and once once you've begun this, continue to make that money work for you. We said this already, but young people take bigger risks because you're able to UM, you've got more time to recover. So utilize stocks, utilize your EA E t fs A e F t S e t s. Okay, it is et F s UM. These are your low cost index funds. UM. You know, the article talks about whether or not investing in specific stocks is going to

be wise over time. Everybody's got to make their own decisions. This article argues that your e t f s are a better route because research shows that generally a stock might do really well for like two to four years, but in the long run, it's unlikely that you're going to end up end up on top. And so these these low cost index funds are usually the best route.

But certainly make your own decisions. But once you reach your forties, fifties, sixties and beyond, you want to start thinking about moving that money out of stocks and into your more safer assets like bonds. Yeah, and you will find them all in the same platform. It's very easy. You'll find stock funds and bond funds right next to each other. So don't be afraid of hearing the words stocks and bonds and investment stuff like that, because they

have made it. These investment companies like Vanguard, Fidelity, Schwab have made it really easy for you to invest money with them. They want to, They want to make the user interfere so easy. So they even have target date funds, which is just a place where you put your money in and at a certain age it becomes more conservative. So without you even having to reallocate your stocks and bonds, it just does it for you and gets more conservative

the closer you get to retirement. And target date funds are totally fine to have your entire life or until you get like super nerdy into investing and you want to switch them out. So it's yeah, so don't be afraid of those words. And we're not talking about social security here. We probably should have mentioned this when we were talking about how much to save that a lot of retirement calculators will factor in social security too. But I think for millennials we have to we have to

take social security into account. But We shouldn't count on it. We don't know what it's going to look like when we get to retirement. It will it will probably be there. I'm not thinking that it's going away. It's it's unlikely it will look like what it does today. So don't count on it. Let it be a pleasant surprise. Ye, not what you base your whole retirement around, for sure. Yeah.

Some of the other places where you can put your money if you're going beyond the rath Ira and the four oh one k, those include your hs A. So that's a health savings account. Part of it is a cash fund and then part of it is an investment fund.

So if you have one through your work, you can you qualify if you are part of a high deductible health plan, you can have an h s A And this is different from an f S A flexible spending account f s A S And at the end of the year hs A is stay with you and they become an investment account past like two thousand dollars anything saved in their past. That is an investment account that can be used tax free, tax penalty free in medical purchases and the list of things you can use in

hs A on is insane. Band aids. You can buy band aids with your hs A. And this becomes really important when we get older, and hs A becomes invaluable because a lot of our spending will become health related in retirement. So pass a certain age. You can use your h s A for any purchases penalty free. But medical expenses are something that people do not factor as much in for as they should in their retirement calculations. And the hs A is a really great thing to

have around if you have extra money to invest. Speaking of a good thing to have around, have this around every week. It's the week up. That's right, It's time for the best minute of your entire week. Maybe a baby was born and his name is William. Maybe you paid off your mortgage. Maybe your car died and you're happy to not have to pay that bill anymore. That's bills, Buffalo bills, Bill Clinton, this is the Bills of the week. Hey, Jenn and Jill, this is Aaron. I've been listening to

you guys for a while. Really enjoy the podcast, and my bill of the week is especially exciting because it's in the theme song. My buffalo bills are going to the playoffs. Clinched their tenth win in their playoff first last night and the Sunday night game against the Steelers. And I get so excited every week when I hear the theme song and I hear Eric out shout Buffalo Bills, and I'm playing the shout song because the Bills are going in the playoffs. Thanks so much for all you do.

Talk to you soon, Buffalo Bills Bill. This yes, you actually came in with the Buffalo Bills Bill of the Weeks are going to the playoffs. Aaron, You're my hero. So after I mean when this airs, it will be after the super Bowl. When does this air after the playoffs? Yeah? Well I think it will be after, right, like after everything. Yeah, February second is when the super Bowl is. Yeah, oh my gosh, so it We'll have just happened. And I cannot honestly tell you if the Buffalo Bills are still

in the playoffs. Yeah, but at this time when we record, uh, the Buffalo Bills are going to the playoffs, and we can delight in that. We we are so delighted. And okay, so they're not out anymore, they're not in anymore. But they went to the Pa, you can see how behind we are with bills. Thank you for sending in all of your bills. The Buffalo Bills went to the playoffs and we can then they were wild cards and they were in for a little while. Yes, Aaron, thanks for

calling in. Thanks for your bill. Even though the bill has passed, faith has decided. Uh, if any of you all out there wants to smit your bill of the week, maybe maybe the Buffalo Bills are back doing something cool, call us next year when the bills make it bad. Trugal Friends podcast dot com slash bill. Leave us your bill and you know we'll air it about two months later. If your bill is time sensitive, send us an email. Nobody's ever sent us a time sensitive bill before you know.

This is a new territory for embarrassing. Well, here we are. Yeah, we're not gonna backtrack. We're gonna. We're gonna keep it in there. This is it. Yeah, we're gonna. We're not afraid of embarrassment. We're going we stay. We don't listen to them until we record the episodes and starting out true to form, True to form, and now it's time for learning round. Noone felt more exciting. These are your

retirement questions answered. Yes. When we ask you what episodes we should do every quarter, a lot of you had specific retirement questions, and we covered some of them in the main episode. But I want to make sure that your specific questions are answered, and we'll start We'll start it off with what accounts you should have, which is something I mentioned right before the Bill of the week.

Your I RA A, your four oh one K or four oh three B, and your H S A. I think those are the three most important retirement accounts you can have, specifically IRA being WROTH and UH so you actually can choose in some places if you want a roth four oh one K or traditional four oh one K, and you have the same choice with an IRA. You can also choose a traditional IRA. Why would you have

a traditional IRA? Well, I needed one when I left my job and needed to roll over my four oh one K. I roll it over into traditional IRA because they are the same thing. And I also had part of my retirement in my raw for a one K because balance why not? And there was absolutely no science or reasoning behind what I contributed to the raw versus the traditional four oh one K. I just did a little bit in each So those are those? Are it? Yeah?

For me? Our next question is what's in my retirement account? Well, it's paraphrased. Here's the answer. Usually mutual funds, although we prefer index funds, which is a type of mutual funds. Yeah, you can control what goes into your I R A, but you can't always control what's in your four oh one K or four oh three B, So you know, there's that there's more control with the I R have

fun with I kind of left that one out. Uh. Yeah, it's a just stocks and bonds so that you don't have to like individually stockpick everything that's in your IRA or four oh one K. They put them all into these mutual funds. And we like index funds because they're passively managed and that makes them less expensive. And that's what goes in. And you can choose which ones you want for an I RA, and usually you can choose

them for a four oh one K too. There's usually a target date fund or something you can put in there, but sometimes there's fewer options in your four oh one K. I know, unfortunately, I know a lot of teachers don't have great options in their four or three B s. So that that's unfortunate, but you have all of the control with your IRA, So that's why we love I RA s. Next, stocks verse bonds question, It wasn't There was no question mark on it, but it just it

stocks response. So index funds made up of both of them. Mutual funds also made up of both of them. So you'll usually find funds that are stock funds, and then you'll find bond funds, and bonds are just like loans made out to different companies and stuff, and then they pay them back with interest and you get some of

the interest. So stocks, you know what a stock is, that's portions of a company, and instead of getting all risky with your single stocks, you buy them in a fund and they just determine how risky your portfolio is. That's the balance. You want both, but you want bonds more bonds the closer you get to retirement, so both are good. I have I'm like on a stocks right now at thirty years old because I don't plan on retiring anytime soon. So that's where I'm I live like.

I always knew that about you. That's how we met. Yeah, you were living on the edge. It was final question, what should I do with a windfall or inheritance. Well, first of all, count yourself hashtag blessed, and then figure out how much taxes you'll low on it. That's always the first thing, consider taxes, and then use the rest

to get you closer to your financial goals. So we recommend always prioritizing paying off your debt, saving for an emergency fund, maxing out your I ra A, and if you happen to have some left over after that, you can have some fun, you know, go on a vek, do do, do a little dance. I don't know. But you can also open a taxable investment account watah, it's their responsible thing to do. It'll act like your I

ra A. You can invest in the same funds. It just doesn't have the same tax benefits as a retirement account. But certainly you can use it to continue to invest and save. Yeah, you will probably here if you're a listener of Dave Ramsey. He says that he saves for investment real estate in a mutual fund, and so that's all he's doing instead of saving money for a big purchase like a down payment or full payment, instead of

saving for that in a checking account. That gets point on one percent or high yeld savings account that gets one point six Uh, he just puts it into a mutual fund or in our case specifically an index fund that can make me in a year and not much change with inflation. Because it's such a short term. You're

not promised that obviously because it is short term. But if you wanted to, say, for your down payment for your house in a bond fund, that's i mean, pretty low risk, and still you'll get a higher return than a highled savings account. So you will have to pay taxes on your dividends so the growth of it, but you won't be penalized like taking out money from a retirement account early, because it's just your taxable account. You do whatever you want with it, and then you just

pay your taxes when you take it out. Give Uncle Sam what do you want? Make him happy. It's part of that positioning yourself in the mindset from a saver to an investor and just figuring out how and where to save your money better best, be best, be your best self. So sorry, So that's it. That's all we have to say about retirement. It's not that confusing. It

can get as complex as you wanted to. But as long as you are getting that four A one K match, you are maxing out your rath i A as frequently as possible, then you're going to be in the best situation you can be in. And and that's all. You can't compare your situation to any situation you read about on the internet. You have to do what's best for you. So that's the end of our episode, and uh, thank you for listening, thank you for supporting us, for leaving reviews,

for sharing the episodes. Reviews like this one from ct what it Be says it's five stars, and she says or he relatable, approachable attitudes towards realistic goals. Great Shower and Car listen different topics that cover the non polar views that I'm accustomed to seeing all over social media and other money centric podcasts. We know what to join about. Also,

I totally get the shower and Car listen. That is, that's where I listen to my podcast too, So I'm glad to be joining you in your Shower and Car m. There's no other place I'd rather be. So we want to thank our friends who share these episodes on social media. So in addition to leaving reviews. You can also enter for our monthly giveaway by sharing the current week's episode

and tagging us on Facebook or Instagram. Yes, and instead of books this year, we're giving weight ten dollar Amazon gift cards because tbh, that's what I was doing even when we were giving a white books. So I'm just being transparent about it now. And we will give away one gift card for every five tags or reviews we get every month. So keep leaving reviews, but please share the episodes with your friends and family on Instagram and Facebook. It helps us grow, It helps us get bigger sponsors

so that we can afford to do this. Yes, I can. She can afford take care and retirement. Yeah, ye, see you next week, see you in Florida. Maybe yes. Herugal Friends is produced, edited and mixed by Eric Syria. Wow Wow, Um, what what do you want to do in retirement? Gen? What a great question. Um. So, I don't really want to travel a lot unless it's on a cruise. I really want to be one of those retirees that just cruises. I was just talking with somebody about this. It's a

thing some some retirees hardly own a home. They just they figured out that it's about as cost effective to owning a home and the repairs in YadA YadA as just cruising nine months out of the year and then like visiting family the other three. And that's what I want to do, is cruise. It's what I want to do. Now. If I was to retire early, then I would just I would cruise. You'd have to find a cruise with

some good medical yeah care on board. Yeah, but they do have their own medical staff, they have a doctor on board, so I think it's a safe bet. What do you want to do. I can't. I'm just picturing you on a cruise. It's gonna take me a minute. You can picture. I have pictures of meat on cruises. You don't have to picture. You show me a real picture. Heck yeah, I was considering about looking into cruises while we're there with you in Florida, Like, should go on

a quick cruise in February? Why not? Let's go, let's all go dot com? Okay, oh my gosh, so when the stairs we might be on a cruise. Actually, I r l um, yeah, okay, what do I I honestly have not imagined this. I asked the question, and I don't even have an answer for it. I think I really don't even imagine myself retiring, which is I don't

know what that means. Um. I guess I hope that I will be in good enough health that I can do things still, like I could still see myself speaking or writing books, or I hope that my mind is still engaged and I can still be with people. I like travel. Now, I don't know what that's going to be in retirement, maybe in my in my older age, am I going to feel ready to settle down more? I don't know, hopefully people. Yeah, my knees are already giving way, so I know I won't be walking around

hiking and walking around Europe and stuff. Okay, So so cruise, okay, all right? Do you feel like you've done the travel you wanted to do in your life? Yeah, okay, I want to go back to Europe, but I want to take a cruise. You want to hear a cruises to Europe and then cruise around Europe? Just be on a cruise. Yeah, I just want to be on a cruise. They like thirty day like cruises. It's it's a thing. Let's get you on a cruise. Then I'm going to look this up.

Last minute cruise dot com. Let's do it. Not sponsored, all right, I'm gonna look it up. I right talk to you. Said by