Why are we Saving for Retirement, Again? #109

something that seems to come naturally. I feel like it's a strength of yours that you have the ability to look kind of like further down the road maybe than most folks, and start making changes now that sort of leads you to where you want to go. Do you feel like that's true. Maybe it's actually in your d n A, maybe it's a Norwegian thing. It could be. I think it is kind of hard for me to

pinpoint exactly why that's the case. I think it's a blend of personality and personal history, and so I think it's kind of baked in at this point that I think a lot about the future and what I want my life to look like. Ten, fifteen, twenty years from now. And I think in a lot of ways that's really helpful. It's really helpful when it comes to to saving up and to putting more of my money towards long term goals.

But I will say sometimes it has its drawbacks to and it lends me to think about what's coming next a little bit more than I should, and a little bit less of enjoying what's currently happening, the good things that I'm currently surrounded by. So I've realized that, and I'm trying to do better about living in the moment and enjoying what's currently happening even while I am looking ahead.

But I do think that this is an important topic for us to cover because I don't think it comes naturally for most folks, kind of like it does for me. I don't think it comes naturally to me. But over time, it is something that I've've worked at and it's it's more like a discipline, I guess, and it's something I've learned, you know, I've learned to implement in my life. So yeah, excited to talk about this with you today. Man, the girls are our wives. Got together today, got the girls together,

and they all went to the zoo. Yeah. The zoo is pretty much the closest awesome thing that we can visit in our part of town, just because it is so nearby. We love being members there, and it's got the splash pad too. With it being summertime, it's it's nice to hit up that splash pad. Oh yeah, the girls are obsessed with the splash pad, especially in this heat.

So yeah, I know they had a great time today, and it just made me want to take more advantage of the membership that we have to use it to its full extent because there are so many cool things happening at the zoo and every time we go there, we have a great time. So yeah, if you have a membership, like a membership to a zoo or an aquarium or or whatever you do as a family that's local, just remember to use it to take full advantage of

the money that you've paid. Yeah, and if you're not taking advantage of it, I mean, that's something that's worth considering cutting from your life. Reassess if this is something that you actually enjoy doing, if it's worth the money. Otherwise, Man, that's just something you can you can cut from your life. Reduce your expenses and put more of that towards retirement,

which is what we're talking about today. Yeah, because those memberships can be sixty seventy hundred bucks a year pretty easily. And if you've got two or three and a few of those stacked up, man, that's a that's a lot of money. It's a lot of change, that's for sure. All right, man, let's mention the beer that we're having on the show today. We're drinking Prairie Artist and Nails Christmas Mom. We're drink an awesome Prairie beer on Monday's episode.

I love that we're drinking a Christmas beer in July Christmas. This is a take on their Imperial stouts, but this has additional spices and flavors in it. And this one was donated to the show by Jeff over at Monday Morning Pancakes. He's got a little personal finance blog going over there. They've got a lot going on in their life right now, but you can still find him on Twitter at Monday Pancakes. And so, Jeff, we really appreciate it.

You sent this one to us a long time ago, and we've kind of been sitting on it for just an occasion. Yeah, perfect a to drink it. And Jeff's a great part of our our Facebook group as well, so Jeff, thanks for being a part of it and thanks for sending this beer. And Matt all right, onto the topic at hand. We're talking about why are we saving for retirement again? And it's a great question to ask. I think for for lots of us, including you and

I'm att, retirement is is pretty far off. But we're told by all the quote unquote financial gurus that it's wise to save for the future. But but how far in the future are we saving for? And depending on what age you are as you're listening to this, whether you or fifty, getting to the why behind saving for retirement and saving four your seventy year old future self, well,

it's an important question to ask. It all feels a bit far off at times, and it's hard to maintain a high savings rate in our fore own k I RA or other investment vehicles if we can't visualize why we're doing it. Yeah, well that gets us to our first point, right, picturing yourself at future milestones that can be really hard, and so you might need help. And I don't know if you've been living under a rock

for the past several weeks. But there's this app called face App, and before that there was one called old if I. But these are apps that literally you can take a little selfie and they make you look older. They allow you to see how you actually might look when you're in your old age. And I know over the past couple of weeks there's been a lot of stink, right regarding the privacy terms, the terms of service regarding face app specifically, and if you don't feel comfortable with that, sure,

you know you don't need to do that. But what we think can happen if you actually were to give that a shot and to make a true connection with how you might actually look in the future. I personally think it's worth it because there are changes that you can make regarding your behavior, specifically to your finances, because there are studies that show that there are changes that you are more likely to make in regards to your

finances when it comes to saving for your retirement. Yeah, Matt, I've seen a ton of fake old people because of the face app on my Instagram feed, and most people are just doing it for fun, right, They're just for kicks. Moving around, they have no intention to save more for their future based on viewing their older self to the face app But I think if you do it with the intention of facing facts and looking at yourself as a much older person, it can help motivate you in

the here and now. It can help you see the reality of what is to come. And for many many people they have found that to be a motivating factor to help them start saving more. There's something to visualizing it and sympathizing with the older version of yourself that can be that kick in the pants that you need in order to start saving and investing more for the future. Yeah, oftentimes we we need that connection. Right when it comes

to the charity commercials that we see. There's a reason why they showed the puppies or you know, there's children on on the TV who needs your funds. It's proven that donors give more to a charity when they hear from a victim or when they can see that victim. Pulmonologists they smoke less than other doctors and the rest of the population because they see dirty lungs every single day. They've had that that dose of reality. When it comes to us and our future selves we we need that

sort of dose of reality as well. We need that connection to our future selves. There's this thing called the end of history illusion, where we think that even though we've seen how we've changed in the past, right, Like we can look back at the last twenty years and see how we've changed as people, we still think that who we are today is who we're going to continue to be for the next twenty forty years whatever. It's just really interesting that we have a harder time, I guess,

just looking into the future. And I guess it's not surprising, right we can look back at pictures and through the pictures were able to see the change that happens. But for whatever reason, we're not very creative when it comes to thinking ahead and looking forward. So because of that, that's one of the big benefits I see of these

aging apps that make you look older. Yeah, And I think even if you don't want to go through the step of actually taking the picture and seeing yourself as a fake older person, just visualizing it and thinking about the reality, or maybe even just kind of writing a letter to your future self can kind of help that

reality set in. And one study from Harvard found that the average person dedicating less than five percent of their income to retirement began to invest upwards of six and a half percent on average based on seeing that smartphone picture of their older self. And in the same study, subjects that were asked to allocate a thousand dollars of their money, well, only those who saw their own future selves were more likely to favor long term rewards over

the short ones. So there really is something to seeing yourself in an older state or spending a lot of time truly thinking about what life will be like at that point. That is a helpful motivating factor that you might otherwise be lacking right now when it comes to saving for retirement. So yeah, visualizing, Joel, that's just an incredible tool. It's an incredible sort of approach in a way to think about the future. And so after the break, we're going to cover some more reasons why you should

be saving for retirement. Alright, Matt, we're back, and the whole point of this episode is to talk about why we're saving for retirement. Right, So let's get into the y. Well, one day you are going to be old, hopefully, right, we hope you live in the old age, and that actually saving for retirement is really helpful to you in your old age that you have more than enough to

live on. If you're not a visual person, well, maybe list out the specific personal financial goals that you want to accomplish by specific ages and begin to work towards those goals now. And a lot of folks may not actually have like specific goals like that, Joel, but even just the goal of being financially independent, which is your investments being able to support your cost of living without you having to work, and to figure that out quickly.

We've talked about the multiply by twenty five rule, which is just take your annual expenses, multiply that by and that's basically your number. Just gives you a ballpark figure of the number that you need to have set aside in order to be financially independent. All right, So let's get into some of these specific reasons that you have to consider when it comes to why you're saving for retirement. And the first one is that nobody else is going

to do it for you. There's a good chance that social security isn't gonna be enough for you to live the way you want in retirement. Pensions, for the most part, are a thing of the past. The burden has become more and more on us as individuals. Times have changed and the way we save for retirement has changed. And so don't think of social Security as this thing that is going to cover all your needs. That's just not

going to be the case. And when it comes to your kids, right you you might want to live with your kids when you're older, but you don't want to have to live with them, right because you have to, and they also might not want you to live exactly um. And another reason that you need to be saving for retirement is because we're just living longer. The life expectancy

in the US. I mean, we're looking at close to eighty these days, and by the time you're that old, who knows what kind of scientific or medical advances that will have, we might be living closer to ninety or even a hundred. So just making sure that we're prepared for our old age is incredibly important. Yeah, and having more money saved up for the future, saved up for retirement,

it just makes you overall mentally healthier. Having that money saved up for your future decreases current anxiety and increases flexibility that you may have. It makes me. Think of an animal storing up food for winter, right, and how good does it feel when they've got a kind of all lined up and they're ready for that long hibernation. But man, if you that's a healthy looking ship monk, right, he's got a ton of acorn saved up in that tree.

Did you see? It's the same for us, right that it just feels better when we have our ducks in a row and we are saving. It makes us feel better and it's better for our overall long term financial future chedule. And speaking of the future, our money is going to be worth less in the future due to inflation. And so when we uh invest our money in retirement,

we're not just saving for the future. We're actually investing our money because our dollar today is actually going to buy less in the future, so we need it to grow. That's the whole point of investing. Yeah, we have to save for retirement or invest for retirement because as if we don't, inflation is going to eat us alive rights. Right, And we're also, by the way, not just saving for the far distant future. We're not just saving for that face app older version of ourselves, but we're also saving

and investing and planning ahead for other near term possibilities. So, Matt, we talked a lot about investing for retirement, but creating more of a gap between what we save and what we spend helps us achieve other goals that are much closer than just the far off goal of retirement. Buying a home is an example of that. Maybe your partner or you want to stay home with your kids, maybe you want to go back to school or just change

jobs or fields. The more you've grown that gap between what you save and what you spend, the more you've allocated towards saving for the future. It just gives you flexibility, It gives you options, and it also gives you a cheaper lifestyle that you have to fund. So saving for retirement is obviously super helpful for seventy year old you, But at the same time, it has real and immediate impacts for what your life looks like inn three, five, seven,

ten years. It really does impact kind of your immediate future at the same time. So Joel, we've talked about the why right, the reasons that we should be saving for retirement. Next we're gonna talk about the how, the nuts and bolts we're gonna get to that right after this.

All right, Matt, we're back and we just covered the y about saving for retirement, and of course that's the whole reason for this episode, but I think we should also talk about the how, because there are some nuts and bolts that are important to consider once we've realized the why that it is for our future self. But it's starting to save more now actually gives us really

immediate benefits. At the same time, well, thinking about your time frame helps you determine where to invest so that you know how you can access those funds when the time comes. So let's talk about now the best places to park your money. The best places if you're looking at keeping your money stashed away for a longer period of time, is going to be a four one K with a match. If you have a work sponsored plan,

it's almost always going to be the best option. There's ways to tap your retirement funds early without a penalty, but we would only recommend this if you are in an early retirement scenario, and if you are, like, congrats, that's fantastic, that's awesome. Otherwise, taking money from your retirement account early it's typically going to be a bad move.

With with very few exceptions. Yeah. Man, it turns out that almost of Americans have access to a four owne K where they work, but only of Americans opt to participate OUCH. So like literally half the amount of people that have access to a four ol one K actually put money into it. And that's hard to stomach because it is typically the easiest account for people to take

advantage of. Right, So, if your employer does offer a four OW one K and it particularly if they offer a match, then you're going to want to make sure you're contributing up to the full match amount. The great thing is, when you contribute to a four oh one K, the money almost feels invisible. You barely recognize us that that money has even gone because it comes straight out of your paycheck. Every two weeks or twice a month. However,

you get paid. And we said that four O one ks are really great for long term investing, and that's totally true. If you consistently contribute to the four oh one K that you have access to through work, you'll be incredibly surprised at the results that you'll garner from decades of consistently investing inside of that vehicle. It just the effects are are massive and we can't even really overstate how big of a deal it is to start contributing to your four oh one K and in particular,

if you do have access to a company match. Yeah, and they A few other vehicles that you can invest in over the long term but that also have great short term flexibility would be your roth Ira accounts, which is one of our favorites as well as an hs A. You can open a roth Ira account on your own, either through M one, Vanguard or Fidelity, and you can check and see if you qualify for an h s A. We would recommend checking out lively for them. You know, we've talked about the RATH and the hs A and

the flexibility that they have. Of one of our favorite reasons for investing in these is the easy and early accessibility that you have to some of that money and so being able to tap into some of those contributions for you know, current investments or other life goals that you might have is one of the nice benefits to

these accounts as well. Yeah, Matt, and we have to mention one of our favorite retirement savings vehicles, and that's investing in real estate, and in particular investing in actual single or multifamily housing close to where you live preferably, and real estate offers some great flexibility by providing current cash flow, good current tax benefits, while also giving you appreciation and increased cash flow over time. So yeah, real

estate is great for so many reasons. But I love it because it's a vehicle that in my mind I consider as a saving tool for retirement, but I also see it providing income and stability for me, like right now. So it is such a great blend of future of saving for my eventual retire but it's also giving me something present day, which that's what I love about investing in real estate. Yeah, it's awesome because it's almost like a bridge that gets you from here and now to

old Joel in retirement. Either way, though, you know what's key to a great retirement in building the future that you want. It starts with a good savings rate. And you may have heard this term before, but I mean your savings rate is just simply the percentage or it's a ratio of the money that you're saving divided by the money that you are earning. And so if you're just starting out, you may not have a savings rate.

But you know that's something you want to get started, and it's a good goal to increase your contributions every six months or even every year. If you have a one percent increase, you're going to be able to massively increase the amount of money that you're putting away towards retirement. You might say, well, one percent, what does that matter? What does it? What does it matter if I increase

my contributions by one percent? Well, the effects over time, especially if you're able to increase your contributions by one percent every six months or every year, that one percent becomes If you continue to make it a habit of increasing at that same rate, it ends up making a really big impact over a handful of years. And the reason right that a savings rate is important is because

it goes beyond saving a specific dollar amount. You can have a raw IRA where you're maxing it out at six thousand dollars every year, and that's great, But what we want you to do is to identify a specific percentage. A percentage can be way more powerful because as you get a raise and you are increasing the amount of money that you're making, well, you're not just locked into thinking cool, I've got six thousand dollars set aside every year.

That's going to be enough. When you've identified an actual savings rate, you can increase the amount that you're saving and setting aside every single year without sort of manually making the hard decision of Okay, now I'm going to increase the dollar amount because it naturally will increase as

you say, get a raise. And you know what, man a raise is actually just a fantastic time to actually increase your savings rate as well, because not only will you be saving more, but you will also be experiencing some of the the sort of fun that you get when you would get a raise. Right. Our goal is that you're not going to just take that raise and then just blow it and and to just consume it.

We think it's really important to celebrate those winds. But at the same time, and those are some fantastic opportunities and times when you can kind of ratchet up that savings rate even more. Yeah, And as you do that, the more you save, you're putting your money to work. And there's power in that. There's power in tax advantaged compounding growth that you'll experience through the decades and the

easiest and best way to build wealth. That's gonna make retirement go from a pipe dream, like it feels like for so many Americans these days who have essentially no

savings rate. Well, the quicker you start to change your habits and begin to actually invest for retirement, the quicker you change that narrative, the flexibility that you can achieve now, and that eventual goal of financial independence when you do want to quit work becomes a reality that you're working towards, as opposed to something that feels out of reach, so Joel.

A quick stat regarding the savings rates is that in the US, the average savings rate is seven and a half percent, which actually doesn't sound terrible, right, you know, we thought maybe it would be a lot lower than that. That being said, that's a pretty far cry though, from what the top countries are saving. A lot of countries are saving over of their income, which is amazing and a little bit encouraging, hopefully not too depressing, right, A

little bit of a kick in the pants. Yeah, that that is a ton of money, and I think that's amazing that somebody folks across the world are putting that much money aside for their old age, and so hopefully we take that as some encouragement and and a challenge. Yes, I think the folks in Singapore are saving close to of their income. So Singapore, nicely done. Challenge accepted, are Joel. I want to pull us back to our beer for this episode, which was Christmas Bomb by Prairie artisan Ales.

This is a beer donated to us by friend of the show, Jeff Joel. What were your thoughts on this one? Man, this beer had a whole lot going on on. I really enjoyed the Christmas spices that were kind of thrown in here. There really aren't that many beers that have a flavor profile like this, and that's truly because of the spices that they toss in during the brewing process. And I feel like, even though we're drinking it in July, it's a little Christmas in July here while we're doing

this episode. Yeah, but I've got the a C running so it feels a little bit cooler and I'm trying to bring on that Christmas Christmas spirit. You know what I'm saying. I feel you, And honestly, it's rare that you run the like this so exactly. I do appreciate it. I'm not being cheap today, sir, But yeah, I thought this beer was was delicious. It's like super thick, and I actually really like a thick stout, So killer spices, really interesting beer. Big thanks to Jeff for sharing this

one with us. Yep, it's real thick. It's got that viscosity going on. And Joel, you mentioned the spices right, It's it's not spicy in the sense of like peppery or sort of like these sharp spices. To me, it's almost like these sort of pastry sweet, decadent spices. It's almost like I'm eating this loaded doughnut that happens to

be a beer. So occasionally when we're looking enjoying a bigger, delicious beer like this, is nice to have these additional flavors to complement all the complexity that that's going on in the Speer, no doubt, buddy. All right, let's get onto our final thoughts for this episode. If you've had trouble getting the ball rolling for saving for retirement, well

you're not alone. And it's really helpful if you can visualize your future, picturing yourself closer to retirement age, whether that's using something like the face app or even just writing a letter to your future self. Anything that makes the concrete reality of what life is going to be like for you in the future a little bit more real is an incredibly motivating factor to to help you get started on your path to saving for your retirement schedule.

We also need to make sure we have identified the reasons why we are saving for retirement. And you know what, nobody else is doing it for us. We're living longer. It's also better for us, it's healthier for us mentally. If we can identify our goals, it's gonna make it all the more worthwhile and easy to work towards those goals. And if that sounds like a lofty task, even just think through what you want your days to look like

in the future. It's up to you, but you can let any of those things kind of be the driver. Let those things be the why of why you save for retirement. Now that you've visualize your future self and you've got your why in hand, well, the next thing to do is to up your savings rate, and the best way for most folks is to do that gradually over time, So whether that's every six months or every year, stepping up the amount that you're contributing to your retirement accounts.

Anyway that you can increase your current savings rate is not only going to help your long term retirement goals, but it's also going to have positive ramifications for your near term future at the same time retirement jel who thought that the that face app would have such a positive impact potentially on how we handle our money? Yeah, I know who who thought right, But legitimately it could. And I think that's kind of cool. Yeah, I think it's super cool. That's gonna be it for this episode.

We appreciate you folks listening. You can check out our show notes on our website how some money dot com. Yeah, and if you've been listening to this podcast for a while and you found it helpful but you haven't yet left a review, well, Matt and I would really appreciate it if you would take just two minutes to let other potential listeners know your thoughts about this show on

Apple Podcasts. And Matt and I tried to say this often, but we appreciate everybody out there that's listening to the show. And if there's ever anything that you think we can do better, well, you can also go to our website, how somebody dot com slash do better. Your constructive criticism just helps us get better. All right, best buddy until next time. Best friends out, Best friends out,