What percentage of my salary should I be putting into retirement?

Ralph
00:00:00

"Dear God, will I ever be able to retire?" That's the prayer I hear from so many Christians who are losing sleep over their retirement savings. If you've ever stood in front of your bathroom mirror, looked into your own eyes and felt a wave of anxiety about whether you're saving enough for retirement, let me just tell you, this episode is for you today. A devoted listener asked the question that's keeping many of us awake at night. "What percentage of my salary should I be putting into retirement, and am I already too late to get started?"

Podcast Announcer
00:00:31

Welcome to the Ask Ralph Podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your host, Ralph Estep Jr.

Ralph
00:01:00

Thank you for joining me today. My goal today is to ease your anxiety. If you feel like me some days, that anxiety is a big deal and especially when it comes to retirement. So today I'm going to give you some practical advice for how to master that retirement. Now, if you missed yesterday's show, we had a powerful discussion about the deep spiritual significance of the Lord's supper. And if you missed it, I'm going to encourage you to go back and listen, and really take some time to meditate on the reality of communion.

Today's listener question comes from Tina. Tina wrote this. She says, "Dear Ralph, I'm Tina, a 32-year-old accountant from Michigan. Last Sunday, I watch Mrs. Wilson, our church pianist of 40 years, quietly putting her grocery items back at the checkout counter because she couldn't afford them all on her fixed retirement income. My heart shattered. I'm only contributing 3% to my 401(k) because that's what my company matches, but every night, I stare at my ceiling wondering if I'm heading down the same path. I have two young children and the thought of them potentially having to support me in my golden years makes me sick to my stomach. Please help me understand what I should be doing differently."

What a great question, Tina. And I'm going to get to an answer in just a moment, but remember, I always tell you, this show thrives on your questions. But today, I want to ask you some questions.

I built a listener survey, and I want your honest opinion about the show. And listen, it's only going to take about five minutes. I promise it won't take more than that. And here's the best part. For everybody who completes the survey, I'm going to enter you into a $250 Amazon gift card drawing. That's right. So if you're one of the people that takes the survey, you'll be entered into that drawing.

And you get to the survey by going to askralphpodcast.com/survey and listen. Your answers will have an impact. They're going to shape the show moving forward. Now in order to be a part of the contest, I need your survey completed by December 10th at midnight because we're going to draw that lucky person on December the 11th. And I want to hear from you. I would love to hear from you. Again, that's askralphpodcast.com/survey.

You know Tina, your concern reminds me of a powerful verse that speaks directly to wisdom and how it should be preparing for our future. And it comes from our favorite, the book of Proverbs 6:6-8. And it says this. "Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest."

And listen, we've all got those stories. Those that we will never forget. And today's story is one that changed my view of retirement savings forever. Looking back, I think it was about 10 years ago. I sat across from this fellow. He was a retired pastor. And he had served his church for over 40 years. And I welcome into my office. He sat down and I could tell right away that something was bothering him. I looked at his hands and they were trembling. His eyes were filling with tears. I could see he was struggling. Then he said it to me.

He said, Ralph, I've got to sell my family home. He told me, he said, Ralph, this is where I raised my children. I had countless Bible studies. And I shared so many precious memories there. And I said to him, why? And he laid it out. He says, because I haven't saved enough for retirement.

He was candid with me. He said, Ralph, I've just always trusted God would provide. I looked at him. I said, I get it. But the problem is he hadn't embraced stewardship with his faith. Now his faith was strong. But he hadn't taken that stewardship and add it to that faith. And to be honest with you, that day changed me and it changed my approach to financial counseling forever. I came to a realization.

Retirement isn't just about money. That, clearly that's part of it. But it's about biblical stewardship and wise decision-making. Consider this, if you will. Every dollar you save today is like planting a seed. And that seed can grow into a mighty Oak through the miracle of compound interest. So, let me break this down with some real numbers that just might surprise you. When I looked at these numbers myself, I was surprised. So think about this. Let's say you decide you're going to start retirement planning at age 25. And let's say you earn $50,000 a year and you decide, you know what, I'm going to save 15% of my salary. That's $7,500 per year. Now you might be thinking, okay, that's fine. $7,500 a year.

You're going to save $300,000 over 40 years. That's just the intro. That's just the principle part. But think about this for a second. If you're able to get an average 7% return on that, that money grows to approximately $1.5 million. And see, think about age 25, 15% a year, you will have $1.5 million and that's the power of starting early and staying consistent.

Now let's look if you started at age 35, just 10 years later. That same savings amount. That same 15% is going to grow to about $720,000 by age 65. So think about that for a second. That 10-year period where you waited, it cut your retirement nest egg in half, from 1.5 million to 720,000 just by waiting 10 years. Well, let's look at 45.

So at 45 you'd accumulate roughly $320,000 by age 65. So now we're thinking about, if you start at 25, 35, now we're at 45, so now you're talking about less than a quarter of what you could have had by starting at 25 and that's a 20 year difference. Now, let's say you wait to start at age 55. You'd only have about $120,000 by age 65 because your retirement window is now only 10 years. And to be honest with you, that's the scenario that keeps me up at night because I know how many faithful Christians find themselves in this situation.

They just never got to doing it. They bought the house, they bought the cars, they put the kids in college, they took the vacations, they did all those things. And now all of a sudden, they're starting at age 55 and thinking I haven't done enough for retirement savings. You might be saying, Ralph, why do these numbers matter?

Well, let me lay some hard truths on you. Social security alone is not going to provide enough income for most people's lifestyles. It just doesn't. If you think it does, you're mistaken. It's that personal savings, those monies that you put away in those 401(k)s, and IRAs, and 403(b)s and all the other, you know, the numbered retirement plans. That's going to be what's crucial for maintaining your standard living and really achieving financial independence. You don't want to be sitting in front of somebody like me and saying Ralph,

I got to sell my house because I didn't plan well and lose all those memories of all that time you spent in that house and all the things that happened in that home. So you might be saying, Ralph, that sounds good. What do I do now? So let me share some practical battle-tested strategies that'll help you boost your retirement savings. And listen.

These are some of the most powerful tools you can use. The first one. This is my duh moment of the day. You've got to master the employer match game. If your company's match is whatever it is, let me just tell you, that's free money to you. Think about this for a second. Imagine you're walking down a sidewalk. Busy street, you're walking down this sidewalk, and you'll see a hundred dollar bill on the ground. And you say, you know what? I'm just too busy to pick it up. I'm not going to bother to pick it up. Well, that's exactly what you're doing if you're not at least putting enough into the retirement to meet your employers match. Think about that. They're giving you free money and you're just letting it what you're walking past that a hundred dollar bill on the sidewalk. So first tip, you need to contribute at least enough to meet the match. If not, you're just throwing money away.

So that's my first one. Master the employer match game. Number two. I call it the Raise strategy. And this is what I call the painless saving strategy as well, called the raise strategy to painless saving strategy. But every time you get a raise, here's what I want you to do. Immediately take half of that raise and put it to your retirement savings. So let's say you got a hundred dollars a month raise, you put 50 more into the retirement every month. And the truth is a lot of people have said this.

They said, Ralph, you'll never miss what you never had in your regular budget. You didn't ever put this in your budget cause it's a raise. And I got some clients that even put more than 50%. I've got a few clients that when every time they get a raise, they put a hundred percent of that into the retirement plan.

And the funny thing that happens is they actually end up with more take home pay. It's a little bit of a nuance thing, but because they have less federal taxable income because they're putting the money away, it really doesn't cost them the whole amount of that raise. So like I said, number two. The Raise strategy.

See what you can do when you get your next raise, see if you can do that. Let's move on to number three. And that's create a diversified investment portfolio. Now listen, you've heard my analogy about the garden, the whole retirement garden idea in the past. So you got to think about this like you're planting different crops. You know, I told you about my grandfather, he and I spent a lot of time together. He would show me all about he's a Southern gentleman.

He would tell me all about gardening. And at the beginning of the planting season, like in March and April, he'd start drawing out his plans and he carefully plan out the rows. He would have one for corn. Then he'd have maybe another one for tomatoes. He loved tomatoes and maybe it was two rows. And they need to have a couple of rows for potatoes, and they need a couple for beans.

Well, you get the idea. You got to do the same thing with your financial retirement garden. Maybe you've got growth stocks. Those are those long-term appreciation stocks. They're like mighty Oaks that can grow tall over time. Maybe you've got some dividends stocks for that regular income. Think about those like fruit trees. You know, they bear season after season, they got the apples.

My grandfather loved his apple trees and his peach trees and every year, they would be in beautiful fruit. Those are those dividends stocks. Maybe add some bonds for stability. Somebody said to me, it's like a strong fence protecting your garden.

And then think about it. Step back from it and picture that financial garden you just built. Think about how you're going to lay it out with the different things I talked about and then get to it, get to planning it because listen, you can have great plans, but if you don't put the seeds in the ground, it's never going to grow. So that's idea number three.

And that's that create that diversified investment portfolio. Let's move on to number four. And that's leverage tax advantaged accounts. I'm going to say something funny here, but in my view, these are God's gift to retirement savers. Think about this. Start about traditional IRAs. They're God's gift because they're tax deductible now and they grow, they grow and continue on so you had to take that money out. There's also Roth IRAs. The beauty of those God's gift in those is the money grows tax-free. And then I got your secret weapon for healthcare expense and that's those HSA's. And I've done a ton of shows on those. If you're not taking advantage of an HSA, you're leaving money on the table.

So that's number four and that's leveraged those tax advantaged accounts. And number five. Consider real estate investment. If you listen to me, you know, I always encourage multiple income streams in retirement. It's just a good thing to do. You don't want to put all your eggs in one basket. You want just want to count on that social security, or that company pension, or those dividends stocks, or those long-term stocks. Especially in retirement you maybe want to consider getting a rental property and listen. I know it's not for everybody. I get it. A lot of people don't have the stomach for that and that's fine. There are other multiple income streams you can do, but the thing that's beautiful about a retirement, or excuse me, about a rental property is it can provide steady income in retirement. Let me tell you about my German shepherd.

Now her name is Piper. Now picture this. Piper is a small little German shepherd. She's not real small, but she's probably 70 pounds. And she's a treat bandit. I'm telling you every time you walk past her, she's looking at you like you're going to give her a treat. We keep them right on the counter there in the kitchen.

And every time one of us walks past my wife writes, I grab a treat for Piper, and I got to be honest with you. My wife sort of takes care of the dog more than I do, but it seems like every time I turn around, she's got a treat. Well, my wife said the other night, my wife was walking out in the backyard, and she had just given Piper a treat, she's walking, and all of a sudden she sees Piper is in the backyard burying it. She's burying that treat that we just gave her. Now I'd be asking why? Well just like you've got to do for your retirement, Piper was storing it for later. Like I say, you've got to do that same thing with your retirement. Just like the ants stores up provisions for winter. You might be saying, Ralph, it sounds like you're promoting hoarding.

Listen, I want to be clear. This isn't about hoarding wealth. It's about being a good steward of what God has entrusted to us. It's about ensuring we can continue to serve others and support our families in our golden years without becoming a burden to them. I did a show about a week ago about the topic was, hey, my parents just turned 70 and they have a plan for retirement.

And as my, as a kid, what am I supposed to do? I'd say kid. But you know, older. Younger than them, but you know, as an adult, how do I help my parents out? Well, the whole problem is they should have started. And I said in that show like, don't get judgmental about them. We are where we are. But think about it right now, whatever age you're at. Whether you're at 25, 35, 45, 55, it's never too late to start to do something.

So I'm going to give you some action items you can take right away. But first, let me ask you this. We're getting close to the holidays. And let me ask you, are you losing sleep wondering how you're going to afford everything on your holiday list this year? It brings out a ton of stress to people. Are you tired of starting every new year buried under a mountain of holiday debt?

I don't know how many clients come to me. Tax season, February and March and they tell me, man, I'm still paying off these credit cards from Christmas. And they only want to do, they wanted to create that magical Christmas memory without that financial stress that comes with them. But so many people find themselves in that stressful situation. And that's why I wrote this guide.

It's called Surviving The Holidays Without Going Broke. And in that guide, you're going to learn a proven budget system that actually works. If you do what I ask you to do or what I tell you to do or what you decide to do, it will work. I share some smart shopping strategies to slash your costs. I talk about ways to create magical memories without maxing out credit cards. I even have a part in there that talks about tips for teaching kids gratitude in this gimme more world.

Listen, I got two young boys. Well, they're not young now. 23 and 27. But I remember there were young it's gimme, gimme, gimme I got to have this. I remember going to the toy store with my youngest, he's like I got to have that, gimme, gimme, gimme. So I talk about that in my guide. And finally, I round out the guide with how to keep faith and family at the center of your celebration.

And that's the key to the whole thing. So listen, don't let January's credit card bills steal your holiday joy. Download your free guide today. You get that by going to askralphpodcast.com/christmas and make this your most meaningful and I mean, meaningful and affordable. That's the whole point of the whole thing, holiday season yet. Your stress-free holiday season starts here and that's at askralphpodcast.com/christmas. And here are those action items

I promise. Number one thing, you got to do this right away. Calculate your retirement savings percentage. Look at your pay stub. Look at what you're doing and figure out what percentage of your salary you're putting away. And one of the things I want to encourage you to do is today increase that contribution by at least 1%. If you're doing 2%, make it three.

If you're doing three, make it four. You get the idea. If you can afford to do more, do more, but do it at least 1%. And then the next thing I'm going to do is tell you to set up automatic contribution increases every six months. So look at your calendar and penciling every six months, you're going to increase that percentage.

And I'm not telling you what your goal should be, but you, I told you about that 15% number, a lot of experts recommend that 15% number. So I'm going to at least tell you to get to that point. If you could do more than that, it's even better. And then another thing you want to do is review your investment allocations, you know, look at where those investments are going.

You want to do that at least annually. And I think if you could do it every six months, it's even better. And then one of the things, listen. Find somebody that you trust, find with a financial advisor and create a personalized retirement strategy. So like, again, we go to those things again. Calculate retirement savings by percentage. Increase your contribution by at least 1% today, set up those automatic contribution increases.

I say set them up every six months. Review your investment allocation annually and talk to your financial advisor and create a personalized retirement strategy for you. It's never too late to start, but you've got to start somewhere. Now tomorrow, I'm going to be discussing the best apps to use to build financial fitness. We use apps for tracking our walking and our eating, well tomorrow, I'm going to be talking about apps that can help you build a financial fitness routine.

So you don't want to miss these practical tools that can help you stay on track with your financial goals. Remember this. My passion is to help you achieve financial success. I want to see you live out your dreams. I want to see you grow in your faith. And I know working together, we can master your finances from a Christian perspective. So as you go about your day today, stay financially savvy and may God bless you abundantly.

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00:18:24

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