A FINANCIAL expert shares tips online to help those struggling to save for retirement.
His YouTube videos offer solid financial information and advice, including steps you can take if you have no money saved for retirement.
David McKnight (@DavidMcKnight), a retirement expert, shared advice for those unsure of what financial steps to take in preparation for retirement.
In the video, he started off with a hypothetical financial situation.
“So you finally got the kids out of the house and off to college and now you want to play catch-up when it comes to your retirement savings. But the question becomes ‘If you’re 50 years old and have very little saved for retirement, is it too late?'”
McKnight clarified that you don’t have to resign yourself to “a Dave Ramsey beans and rice, rice and beans diet,” alluding to the highly frugal lifestyle that Ramsey typically suggests.
Instead, the expert said you can “supercharge your retirement savings plan today to get everything back on track,” sharing how to do so over 15 years.
In the hypothetical situation, he assumed that the prospective retirees are married, make $100,000 per year each, and want to retire at 65.
TWO FINANCIAL TIPS
He provided two tips to people in a similar situation.
- Invest exclusively in tax-free Roth accounts rather than traditional tax-deferred accounts
McKnight gave two reasons for this, with the first being that tax rates 15 years from now will be much higher because the national debt will be much higher.
The second reason is that Roth accounts do not count as provisional income, meaning they don’t count against the thresholds that cause Social Security taxation.
“If your retirement savings consist entirely of Roth accounts, you have a high likelihood of receiving your Social Security 100% tax-free,” he said.
McKnight suggested putting money into two Roth accounts – a Roth 401k and a Roth IRA.
Assuming that both partners have access to a Roth 401k through work, he advised each to contribute $30,000 per year to it.
He added that if their companies provide a match, “That means you’ll get a bunch of free money along the way.”
McKnight hypothesized that if each person received a dollar-for-dollar match from their employer up to 5% of their income, then that would be an extra $10,000 per year, totaling $70,000 going towards the couple’s 401k per year.
He also said that because the total income is below the modified adjusted gross income threshold of $228,000, they can contribute to both their Roth IRAs.
McKnight suggested contributing $7,500 each, making for an additional $15,000 per year.
Accounting for both the Roth 401k and Roth IRA, this would total $85,000 annually.
“You may think this is a lot to contribute to your retirement plan based on a $200,000 income but if we’re going to meet your retirement goals given the short runway of 15 years, we’re going to have to make some extraordinary adjustments to your lifestyle along the way,” said the expert.
2. Invest aggressively in stocks
McKnight then suggested investing at least 8% per year in stocks, which he noted would be primarily constrained by the investment options available in one’s Roth 401k, as that’s where the majority of savings will be allocated.
“Your best bet is to find a low-cost index fund linked to the S&P 500,” he said.
He noted that if the market is down when the hypothetical couple plans to retire, then they may need to delay their retirement a year or two to let their balances recover.
By the end of the 15 years, the couple will have accumulated $2,307,929.68.
McKnight said that based on the 4% rule, they can withdraw $92,317 per year adjusted for inflation.
He added that because the distributions are coming from Roth accounts, the income is 100% tax-free. Also, because distributions from a Roth IRA don’t count as provisional income, they will receive their Social Security 100% tax-free.
“When you combine these two inflation-adjusted tax-free streams of income, that will likely be plenty to meet your lifestyle needs in retirement,” McKnight concluded.
In other retirement news, a financial pro gives a “broke” 65-year-old three “more radical” goals to save, but they need to sell their car.
Also, an expert tells a couple in their mid 60s with $4.1 million and still “uncertain” about retiring to focus on “foundation.”