Stretching Your Dollar: How to Approach Saving for Retirement

<div class="block">The time to plan your retirement future is now. Jake Falcon, founder and CEO of Falcon Wealth Advisors, joined &#39;Stretching Your Dollar&#39; with a few money-saving tips that could help set up your future after retiring from a career. </div>

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If you want to live comfortably in retirement planning ahead is essential from starting a 401k in your twenties to diversifying your investments. Experts say it's important to start saving as soon as you can. And joining me now is Jake Falcon, founder and CEO of Falcon with wealth advisors. Uh Jake, thank you for coming on the show. At what age ideally should someone start saving for retirement? Thanks for having me and we tell our clients to save early and save often. Compound interest is a beautiful thing when used appropriately. And frankly, if you get a W-2, you should consider starting, go ahead and saving that for that retirement. How much of your monthly income should you allocate toward a retirement savings plan? Yeah. So this is a tough one because it's going to vary from person to person and according to your financial goals, but a great place to start is that we recommend saving 10% of your gross income in retirement and 10% into savings. This leaves you 80% to pay taxes, mortgage rent and other bills and hopefully some leftover money for some fun purchases as well. I like that. We all need to have a little bit of fun. Right. Play has to be involved a little bit along this journey. But let's talk about the difference between a 41 K A Roth Ira and an Ira. What do our viewers need to know about these different products? Yeah, there's a lot of nuance here, Kristen in each one of those different types of accounts. The first one to understand is that a 401k is an employer sponsored plan. And if your employer offers a 401k, you want to take a look and see if they offer any matching. So if you could put 6% in and they match 6% that's almost like getting free money. Now, an Ira and a Roth Ira, those are more sponsored by the IRS and they all come with their own nuance and rules. There's different taxation on all of them. So again, we could have a whole show on this, but the ideas that a lot of people don't know is that you can actually have a 401k, an Ira and a Roth Ira. So again, lots, lots to unpack there and discuss. Ok. So just quickly, Jake and I know there is a lot dedicated to that very topic. But what is the best one? Depending on your situation? Generally speaking, the higher tax bracket you're interested in the, or a pre tax or Ira that you can deduct the money going and makes sense. The lower your tax bracket, the more a Roth Ira may make sense. And the reason is when you pull money from a pre tax retirement account, that income is going to be taxed as income. When you pull money from a Roth Ira, it's going to be tax free. So again, a lot of nuance there, but that's generally speaking, one quick note, one thing you can do is that you talk about investment diversity, you can actually do tax diversification and have a 401k with pre tax or an Ira and a Roth Ira and even a brokerage account that's tax as you go to set yourself up to be tax diversified. Ok. So let's talk about different decades, right? And of course, if you're not on this path right now, I don't think you should be discouraged per se, but just kind of good guidelines, right? To try to have goals to strive towards. So what's the best way Jake to start saving for retirement in your twenties? Right. Chris. And I know retirement isn't the sexiest of topics, but in your 20 there's a few things you can do to really set yourself up. Number one is to not sleep on that Roth. I hopefully this is the lowest tax bracket you'll ever be in because your income will grow. And so we really love clients in their 20 to look at that Roth Ira or 41 K. Look at growing your income annually asking for a raise, getting a side hustle other ways to earn more income. And then the quick one here is, don't be in a hurry to buy a house. There are a lot of other expenses that go into home ownership and you don't want to have to put your retirement on the back burner because you've got to buy a new roof, for example. Ok, good advice. Thirties. What are some of the big goals that people should be aiming for in their thirties? Yeah. So we're seeing many people starting to get married in their thirties or start a family again. You don't want to sleep on your retirement. What's exciting about getting married? And me being a bit of a financial nerd when I got married, I was like, oh, great. Now I can double up my retirement savings because I have a wife. And so looking at combining forces when you get married and against starting a family, don't let the retirement be on the back burner and don't forget about the wrath at some point. Hopefully you will earn out and you won't be able to contribute to a Roth Ira. So I want you to continue to contribute to a Roth Ira as long as you're eligible. Ok. And forties, what are some goals there as does in a little bit closer in that decade? You're right. It's creeping up fast for clients in their forties. And you want to look at your tax bracket, maybe now you are in a higher earner and maybe it's now time to flip to the pre tax and maybe not put so much money in a Roth 41 K or Roth Ira. So you definitely want to review your tax brackets, make sure that you're maxing out other type of retirement or not even retirement accounts, but like savings accounts, deferred compensation or stock purchase plans. And then if you want to retire early, the best thing you can do for yourself in your forties is to start building up a brokerage account that's tax as you go. But it may offer a lot of flexibility if you're looking to retire in your early fifties, for example, interesting. What are some of the most common mistakes jake that people make when they are saving for retirement and how can our viewers avoid them? Yeah, the, the easy one is not saving enough and not saving early. Like we've already commented on also thinking they're maxing out their 41 K when they're not just because you put 6% in, for example, and if your employer matches 6% you may not be fully maxing out what the IRS allows for. And then also two quick things maybe not investing appropriately, you may be too conservative with your investment mix or you may be too aggressive. And then like we've already discussed not being tax diversified. So you want to make sure that you're looking at the various different types of retirement accounts and making the ones that are best suitable for you today? What about minimizing the tax burden? I know you've been talking a lot about taxes, right. And obviously those costs can add up over time. Yeah, just like financial planning and investment management need to be reviewed annually. So, does your tax situation, we're dealing with a big unknown. We don't know what tax rates are going to be a decade from now. And so what we advise our clients and what we do for them is we review their taxes today and we make the best decisions based on the information that we have today, knowing that we may need to pivot in the next 10, 20 or 30 years. So again, understanding things are going to change, the rules are going to change and being able to adjust to that and then also doing that tax diversification. All right, Jake Falcon founder and Ceo of Falcon Wealth Advisors. Jake. Thank you.