Is Your 401(k) an Asset or a Liability?

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2.2.24: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Producer:
Any examples used are for illustrative purposes only, and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment, and is not a solicitation or recommendation of any investment strategy.

Producer:
Welcome to Money Matters with Mike, with your host, Mike Zaino. Get set for a full hour of financial information and economic news affecting your bottom line. Mike works hard each day to educate Americans like you on how to reach the financial freedom they've worked so hard for, and he can help you too. So now let's start the show. Here's Mike Zaino.

Mike Zaino:
What's up, what's up, what's up? It's Mike Zaino coming to you from Fort Mill, South Carolina. Happy Saturday people. What a great time to be alive in these United States of America. And Money Matters with Mike is a show designed to arm you with information and give you plenty of meat on the bone to chew on each and every single week. And today is not any stranger to the meat on the bone that we're bringing. On today's show, we are going to discuss unlocking the power of your retirement savings. And I'll ask the question, is your 401 K an asset or a liability? As always, I have the distinct honor and privilege of being joined by the one and only my co-host and producer extraordinaire, Mr. Matt McClure. Matthew, how are you doing today, brother?

Producer:
I'm doing great, Mike I hope you are as well sir.

Mike Zaino:
Buddy, I am very well. We got a little reprieve this week from all of the rain. It was, uh, sunshine for, you know, much of the week, and so had a chance for, you know, to kind of dry out a little bit. Although it's been a little been a little chilly, a little windy. But you know what? It's, uh, I tell people all the day, every day is a great day when you wake up, when you're able to look out a window and stare at branches instead of roots, you know, you got something to be thankful for.

Producer:
That's right, that's right. I'd rather be standing six feet tall than be six feet under. That's, uh, pretty much how I think about that. Uh, but anyway. Well, I am actually just a little bit above six feet tall, so I can. I can say that, you know. Yeah. Um, but a lot of great stuff to get to today. And I love the way you tee up the show here, Mike. And asking that question is your 401 K an asset or a liability? Because I think that a lot of people who, um, have been working for a long time, working for years and years and putting away into their 401 K, are probably thinking, um, well, I certainly hope it's an asset after all this time I've been putting putting money into it. Right.

Mike Zaino:
That's that's true. I know a lot of times 401 K's become 201 K's, though, because of the, uh, the performance of the market and the exposure that folks are, you know, uh, exposed to, uh, the exposure they're exposed to. Hey.

Producer:
I love it. Profound words that that's not our quote of the week, by the way, folks, but, uh, we're going to get to that in just a second. Uh, wanted to say, though, as as Mike already, uh, did as we started the show, just reiterate how grateful we are to you, our listeners, for joining us here for Money Matters with Mike. Each and every week. You can hear us here on Re. You can also listen to the podcast. Uh, you can go to MoneyMattersWithMike.com. That's MoneyMattersWithMike.com. Or you can go to your favorite podcast app. We are in all of them. So go there and search for Money Matters with Mike. The YouTube channel is full of great content. Again, just go to YouTube search Money Matters with Mike there, and you can also go to Facebook and do the exact same thing. And there's a lot of great content you're probably not going to find anywhere else there on our Facebook page.

Mike Zaino:
Mike, you know, Matt, you just mentioned our YouTube channel. Um, I was absolutely astounded. One of one of our producers contacted me this week and was like, hey, what are you doing? We've had so many new subscribers and so many new views on the YouTube channel. And I think, you know, it kind of goes in line with the time of the year. People are trying to, you know, they're putting those New Year's resolutions into place and, and they're really trying to gain control of their finances. And so they're visiting our YouTube channel and watching all of and we've got, you know, a year and a half worth of episodes up there that people are actually watching and getting caught back up on, just as, as a great reminder of some, you know, awesome financial practices to put into habit.

Producer:
Yeah. And there's a lot of great information, as we say on there and on, almost any kind of, you know, question or problem that you might be having. Chances are, there is a related video with Mike explaining a lot about the issue that you that you might be experiencing. So do that. Go to the the website Money Matters with my com, go to the YouTube channel or the Facebook page and reach out. You can actually call Mike as well 704 56015737045601573. He keeps that phone on him at all times, and if he doesn't answer, which is rare, he will call you back just as soon as humanly possible. So that is a promise he will make to you. Um, a lot of great stuff to come up, Mike. Not only are we going to talk about 401 K's, we're also going to talk about the bonds that might be in someone's investment portfolio. You know, a lot of people have been clinging to that old 60 over 40 portfolio idea, 60% stocks, 40% bonds. And that's just kind of been a guide for a lot of people for decades and decades. Is that still something that you should be doing? That's the question that we're going to ask and answer. Uh, coming up here in just a few minutes, also some Social Security talk and what you need to do to maximize your benefit and also talk about how much you are paying in fees. You want to make sure that that number is as small as humanly possible. First, though, let's get things kicked off here with our financial wisdom. Quote of the week.

Producer:
And now for some financial wisdom. It's time for the quote of the week.

Producer:
And this week's quote comes from none other than Will Rogers. Easy for me to say, Will Rogers.

Mike Zaino:
It's going to be one of those weeks, Matt. Words are hard.

Producer:
It is. I know, uh, first day with my new tongue here, but, uh, Will Rogers again is his name or was his name because he died in 1935? Uh, but he said this one time, quote, A man only learns by two things. One is reading, the other is association with smarter people. Boy, I love that because, you know, you kind of you hang out with people who are, you know, not quite, uh, as smart as you are, you're not going to be learning a lot of stuff. But if you hang out with people who know more than you, you can learn from them. You can be like a sponge and just take it in.

Mike Zaino:
I love that quote because, you know, I kind of heard something similar, right? It's like, all right, you know, you definitely want to read and not read necessarily fiction unless you're just trying to, you know, lose yourself and take your mind off stuff. But Li, you know, read things that are going to lead to personal development. And so, you know, I also heard it said, if you hang out with five losers, you're probably going to be the sixth. And if you hang out with five millionaires, you're probably going to be the sixth.

Producer:
Hungry for something to chew on. Here's some meat on the bone.

Mike Zaino:
And so when we apply his quote to savings and investing for retirement, I think it just emphasizes the importance of education and then learning from others, particularly those who have expertise in financial matters. So, you know, the first thing is reading because what does that do? It provides an education on financial literacy. And so people that are listening, you guys need to educate yourselves about just basic financial concepts, including investment options, risk management and retirement planning. So whether you're reading books, whether you're reading articles, or any type of reputable financial resource that can enhance your understanding of all the complexities involved in managing your finances and preparing for retirement. So just by tuning into this show on a weekly basis, you're definitely enhancing that, because what I try to do is take those financial complexities and break them down into plain and understandable English. Right. And so, you know, you also want to pay attention to market trends, because staying informed about market trends and economic indicators and different investment strategies through reading, through listening to the show can help you make informed decisions and not just making decisions by the seat of your pants.

Mike Zaino:
Especially when we're talking about your retirement investing. Okay. And then as far as associating with smarter people, that just enables you to learn from the experts. Okay. So the first thing that I would mention is seek the guidance of a financial professional. Why? Well, they can provide valuable insights into personalized financial planning. And so we experts can help you navigate all of those complexities as far as investment options, tax implications, as well as risk management and then networking. Definitely want to surround yourself with financially savvy and experienced individuals, whether that's through a networking event, whether that's through discussion groups, mentorships, any of those can offer different perspectives. And that I think is huge. Right? Things that you might not have thought about before and then practical insights into successful retirement planning. So again, in the context of, you know, working toward a successful retirement, I think Will Rogers is quote, suggests that you should actively seek the knowledge not only from books and educational materials, but by also engaging with knowledgeable people who can provide guidance just based on their experiences and expertise.

Producer:
Well, this is why I hang out with you every week, Mike. I mean, that's just bottom line. Um, I, I got to hang out with smarter people in order to grow, and that's what I do here. Uh, when we, uh, are on the air with Money Matters with Mike, uh, because really and truly, though I do have to say, over the last year and a half that we've been doing this show and, and many, many more months and years to come, I'm sure the knowledge that I have gained just from the fact that, as you said, you know, take taking those complicated concepts and putting it into plain English so people can understand it. Gosh, that's so important because so many people are intimidated by, you know, money management and their money matters, right? Of all kinds, you know? And so I think that really boiling it down to where it's approachable is kind of the first step in, in making people better educated when it comes to their finances. Yeah.

Mike Zaino:
And not for nothing guys and gals that are listening right now. That is something that I absolutely pride myself on. And I would challenge you if you were to Google the Zaino Group. All right. That is my company, the Zaino Group. Money matters with Mike is the radio show, but my company is the Zaino Group. If you would just Google that and click on the reviews of people who have just, you know, met with me and that I've been able to help throughout the, throughout the years, I think you're going to be absolutely astounded. And then I want you to Google Best Retirement Advisor near me and see how many reviews they have. Like, that's a challenge that I throw out a gauntlet. I want you to actually do that because I think you'll be astounded. And when I take care of the people who then are, you know, willing to go out on, on, uh, public forums like Google and put their testimony, you know, if you mess up, they're going to tell a thousand people. But if you do, well, it's rare that people actually will give you a compliment. And so I take that as a as a badge of honor. And I wear it proudly because those people have been willing to do that.

Producer:
Yeah. And that's a great, great thing to do, folks. Just. Yeah. As Mike says, the Zaino Group, just search for that on the old Google machine and read those reviews. You can also go to the website for the show as well. If you want to reach out to Mike and get some more information about anything that we have talked about so far or will talk about over these next, I don't know, 45 minutes or so that remain in the show, almost almost 50 minutes into remaining of the show, you can call Mike at 7045601573704560 1573 or go to the website. Again, it's MoneyMattersWithMike.com. All right Mike. Well to kind of the the one of the bigger parts of the show here that we sort of teed up a little bit ago. There are a lot of people who still stick to that 60 over 40 portfolio ratio. Right? 60% stocks, 40% bonds. But there's been this sort of growing movement over the past couple of years, especially since things have been kind of wonky in the bond market, particularly. Um, so there has been this growing movement to replace the bonds in people's portfolios and replace them with a particular type of product called a fixed indexed annuity. And we'll get to kind of the ins and outs of that in just a moment. But first, why are people considering that and or making that move to replace those bonds?

Mike Zaino:
You know, I think the biggest reason is, is safety and guaranteed growth, right? That that is literally the biggest reason, because, you know, if you look at the economic conditions over the past few years, if you look at the global conditions, I mean, the only bonds that have actually performed are disaster bonds. Um, because there's been a lot of whoring going on and a lot of economic uncertainty. In fact, the bond market as a whole had its worst year in history in 2022. And so we've seen just a just kind of a migration, a mass migration away from bonds and into something that is guaranteed that you don't have to pay any fees for. Or if you do, they're extremely minimal, but you have guaranteed growth in a protected environment. And when the index choice that you have chosen for your money, if it were to be negative, guess what? That's where the protections kick in and you're guaranteed not to lose a penny. So for that reason alone, I think that's the biggest, you know, cause of this mass migration. I mean, it is not your grandfather's, you know, portfolio mix anymore things. You know, we've come a long way since pagers. Okay. And the rotary phone, um, you know, now technology is such that, you know, it enhances living. And some of you listening may say, bah, humbug, I hate technology. I wish we could go back to that. And part of me feels that way, too. You know, technology is a love hate relationship. When it works, I love it. When it doesn't, I want to take it out and use it for target practice. But, you know, bottom line is, is when things evolve, when you know better, you do better.

Producer:
Yeah, that's I think that's really the lesson there. And now you know, we know better. A majority of people are concerned about all the bank failures. As you said, Mike, there's been a bunch of economic upheaval, a couple of bank failures last year that were, um, just really shocking to us for us to all kind of see. And I, you know, a lot of people to experience as well with Silicon Valley Bank and a couple of others went through some big, big troubles there. Um, and then, you know, you have to think, because of those bank failures, how safe is the money that you actually have in, in banks or in bank CDs? I mean, there we've talked about this before, but I think it's been it's been a good while. So it's a great time to bring it up as part of this conversation. That's reserve requirements. Yes.

Mike Zaino:
Yeah. So you know typically banks are, you know designed and built to make money. So every dollar you deposit into a bank that the law only requires them to keep $0.10, they're lending out $0.90 of your money so that then, you know, if there is an economic scare and people start withdrawing their money in masses, they don't have enough liquidity to be able to give everybody the money. And then guess what banks have done with your money? They're buying bonds longer, firm bonds. So if they don't have enough capital reserves, they're having to sell their bonds at a loss, which is the reason why these banks have gone out of business. And then, if you can believe this or not, back in March of 2020, the Board of Governors of the Federal Reserve System, they reduced the reserve requirement ratios on all net transaction accounts. Guess what, folks, to 0% eliminating reserve requirements for all depository institutions. So, you know, contrast that with the insurance companies that we work with who issue fixed indexed annuities. Get guess what their reserve requirement is. It's not 10%. It's not 20%, it's 100%. So they have to have dollar for dollar reserves, so that if there is ever any type of calamity or catastrophe or pandemic type event, they have the money. And then on top of that, depending on the state requirements, they're going to have a surplus of between 5 and 10%. But all the companies we with most of them are well above even a 10% surplus. So when you're talking about your money being backed by dollar for dollar reserves, that gives people a huge sense of confidence and belief that their money is safe and not at risk.

Producer:
And another aspect of that safety and but also growth as well. Um, these annuities that we talk about, fixed indexed annuities in particular can provide people with market like gains, right, because they are not invested directly in a market index, but their growth is tied to a market index. Um, they can provide gains, but without that market risk because as I say, they're not directly invested in that particular index. Um, and also the growth gets credited to your account based on how the growth in the index. But if that index goes down, boy, that you are protected, you don't lose a penny.

Mike Zaino:
That's that's absolutely true. And so, you know, I like to use analogies all the time. So think of it like a casino. I know that many of our listeners out there have been to a casino, and almost everybody that goes to a casino when they're walking out, they're like, dang it, I should have left, you know, 2 or 3 hours earlier. I was up, right. But most people get greedy. And so, you know, with when your money's exposed to the market and shares are being bought and sold every single day, you have a lot of fluctuation, a lot of potential anxiety, worrying about what's going on with your money. So imagine going to a casino, sitting down at a table and the dealer says, hey, at my table. You can only win. If you win, I pay you money. If I win, we're just going to call it even. We'll push. I mean, how long would you play at that table? Probably a long time. And so like you said, with a fixed indexed annuity, instead of the shares being bought and sold every single day, most of them go on what is known as an annual point to point. So, you know, they'll look at, say, your your contract issued on January 1st of 2024. Well, they'll go all the way through December 31st of 2024. And if there was a loss in the index, guess what folks? Your money is 100% protected. You're worst. That you can do is zero gain, meaning you cannot lose a single penny. But if there is a gain in the index, then your money is credited. That gain is credited to your account and then becomes part of your principal. So you know, because of the reserve requirement, your money is much more protected when it's with an insurance company versus a bank.

Producer:
Yeah, it's just good, good news all around there. If that is something that you know can fit inside what is right for you in your particular situation, and that's really all what it boils down to, is is it right for you under your particular circumstances? Um, and, you know, that's a big reason to give Mike Zaino a call at 7045601573704560 1573 and find out if that is right for you in your particular situation. Um, now, Mike, we talk about a lot of people hear the word annuity and they and they think, oh, I've heard bad things about annuities from some, you know, financial guru who's probably getting paid to say bad things about annuities or I have, you know, heard or maybe say a relative or a friend had a bad experience with an annuity years ago. Right. Um. Talk about how annuities, particularly the different types of annuities, have kind of changed and grown over the years. I think a really this particular kind of fixed, indexed annuity kind of emerged, um, during the 2008 financial crisis as kind of a real safe haven for people who had money in the stock market.

Mike Zaino:
Yeah, that is absolutely true. So first off, I will say that people that say I hate annuities, you may as well say I'm what I'm hearing is I hate food, right. You know, I may not like certain types of food, but I love other types of food. And I think it's an education, uh, matter. And people don't know that there are many, many, many different types of annuities. Guess what, folks? There are some annuities that I can't stand. I would never put my worst enemy in them. All right. Those are the old school annuities where you give an insurance company money and they charge you money to pay you your money back. And then if you die, guess who gets the money? The insurance company. I wouldn't put my worst enemy in something like that. But believe it or not, those still exist. Okay, so you have to talk with somebody who knows and can navigate and guide you through which one is best for your individual situation. Well, you mentioned 2008, right? As the stock markets plummeted and traditional investment vehicles faltered. Well, anyone who had money or a portion of their, you know, portfolio in a fixed indexed annuity, they found themselves in a much, much more secure position. Why? Well, they didn't lose anything. Okay. And so for those investors who owned annuities prior to that 2008 2009 downturn, their annuity contracts protected their principal that was invested in the annuity. Meanwhile the S&P 500 well, we all know what happened there. It lost 46% of its value between October of 2007 through March of 2009. And so while I agree that fixed indexed annuities for most people, I will throw that in, there are not suitable investments for your entire portfolio. Many people choose to, you know, allocate somewhere between 3040 to I've seen 60% really just depends on what your goals and your objectives are. Um, into these personal pension type products, sometimes more, depending on their individual situation.

Producer:
Yeah. And I love that, um, phrase. I think that really is one that brings it home for people when we refer to it as a personal pension, because that's really what it is. I mean, you know, it used to be you worked for a company, uh, for years and years, you know, you 40 years, let's say you're retired, you got your gold watch and you started getting pension payments. And that was the company's responsibility was to that. That was a, you know, an agreement between, you know, you're saying, I'm going to give you my blood, sweat and tears for four decades of my life and then the rest of my life, you are going to pay me a certain amount of money, um, going forward. And so that was what was the responsibility of the employer? Well, uh, the 401 K, of course, which we will talk about in, in, uh, at some length here in just a few minutes, uh, came along and changed all that, really threw it on its head. Right. And so this is a way for people to get that same type of guaranteed income for the rest of their lives. But it's, it's, um, kind of up to them, you know, it's again, the responsibility no longer on the employer, but this is something that you can actually have control of, which is, um, kind of refreshing in, in a big way because I think a lot of people are, uh, if you're kind of like me, afraid to sort of give up control of a lot of things, this is something that you can control where your money is going, which vehicle you want to put your money into, and then give yourself that, uh, personal pension, as you say, for the, for the rest of your life.

Mike Zaino:
Yeah. And I think it's important for folks to understand, too, that every year you can reallocate where your money goes within the fixed indexed annuity, because there are many different index choices. And typically what I'll do is I'll pick 2 or 3, um, just to kind of diversify within the FIA itself and then let the horses run for a year or two, and then we'll see, you know, which horses are pulling ahead of the race, so to speak. And then if it makes sense to reallocate more of the money that, that, ah, you know, had been allocated to the lagging horses, right, then we can do that on an annual basis. And all that's doing is giving you a chance to capitalize on more of the upside, all while being 100% downside protected. And so, you know, the personal pension, I think that in and of itself can be huge, because whether you want to establish an income stream, number one, that can never be outlived, um, and then it can also continue to grow so that when you become room temperature, you can leave that money, whatever the balance in the account is to named beneficiaries, whether that be your spouse, your children, your church, your charities, you know, whoever you want to leave that money to. That's one of the biggest differentiators. And so some of them out there even offer you a little bit of an incentive to, you know, make up for maybe some of the down years that you've had in the past. If you lost money in 2018, 2020, 2022, and you're trying to get back to where you were, well, we have products that are going to offer you somewhere between 10% and 20% of all of your deposits, and that's an immediate return on investment the day you replace whatever that was in, whether that be equities and stock market stuff or bonds or, you know, wherever you're placing that money from. So I think that can help people get back to where they were before they lost that money.

Producer:
Yeah. That the immediate bonus there in a lot of these types of annuities really can be something that can boost your, your retirement going forward. And your, your hard earned money can be working even harder for you with that extra boost. So that's a that's a great, great thing. And then of course, as we talked about it's a personal pension for the rest of your life. You cannot outlive it and it can grow. You can leave that money to your beneficiaries. And it also really when when you start generating that income, um, from your fixed indexed annuity down the road, it really does allow not only, uh, you know, that that income. So you so you've got that, uh, sort of paycheck replacement kind of thing going on paychecks and paychecks, as we like to call them. But also, your other retirement accounts can potentially still continue to grow as well, because you're not having to tap into those because you've already got a stream or two streams of income, uh, depending on how many fixed indexed annuities you have in your portfolio.

Mike Zaino:
That's true. I mean, it's going to eliminate any downward pressure from regular withdrawals of other assets. And so, you know, I've spoken about it. In fact, last week we spoke about it. And I know I've spoken about it before about my strategy of laddering some of these fixed indexed annuities so that you I'll be able to turn on income in successive years until I just don't need the money anymore. And if I don't need the money, then I won't turn on the income on the successive ones in the ladder. And that money will just continue to grow for legacy type purposes. So, you know, the old 60 over 40 portfolio was 60% stocks and 40% bonds, whereas the new 60 over 40 portfolio is 60% stocks and 40% in fixed indexed annuities. And so that bond replacement just allows you to take a large portion of the risk, as well as the fees off of the table. Risk and fees are no longer a variable in the equation, so to speak. And you can do that in just one move. Okay. And this is a much more market efficient and fee efficient strategy than what most of your money managers out there are implementing for their clients today. So if you would love to see how a personal pension could fit into your retirement plan, just pick up the phone. Give me a call (704) 560-1573. Again (704) 560-1573. Folks, that is my personal cell phone. It's the only telephone number that I've had since 1997. Millions of folks have it. It gets blown up every day. But guess what? I'm extremely responsive. You can text me even at the same number with your name and your question, and I'm happy to respond. So, you know, bottom line is I want to help as many of our listeners who get in touch with me. All right. This week and help them compare their personal pension options so that you don't have to spend your retirement worrying about what's happening with the volatile stock market.

Producer:
Yeah. Boy, that's, uh, that right there is worth its weight in gold and silver and all of the precious metals and and, uh, gems and everything else. Because, you know, you can't put a price on your peace of mind you, if you don't have to spend the last time you have to spend worrying, the better. And if you know Mike Zaino can help you take some of that worry away. Boy, that's just, uh, that that's a that's a big relief. Let's say, to put it lightly.

Mike Zaino:
Look, folks are, you know, number one goal. My number one goal is to help clients make informed financial decisions that leave them feeling confident about taking the next step into retirement. I don't want you worrying about whether there's more money than money. I want to give you the peace of mind that comes with knowing you have a sound financial plan. So that's why I implore you to pick up the phone or go to Money Matters with Mike comm. Just get in contact with me. It's the beginning of the year. It's a great time to put your plan into action.

Producer:
Yes. Absolutely. Right. And that first step, of course, is going to money matters with Mic.com or calling 704 5601573. Okay. We talked for just just a brief, fleeting moment about 401 s. And there are, um, a lot of people, though, Mike, who are making mistakes with their 401 s, you know, I mean, there are people who just kind of it's like a set it and forget it kind of thing. They kind of they start with an employer, they sign up in the beginning, they're like, okay, here's my contribution amount and that's it. They never sort of think about it again, just kind of let it do whatever it does and think, well, okay, that's the only choice I have is to just let it do its thing. But that is really not the case. You have options for your 401 K, so take advantage of those right.

Mike Zaino:
Yeah there's no doubt. First off you know we had mentioned pensions which was a defined benefit plan. And pensions for maybe your parents and grandparents. You know, they were in effect when the life expectancy was much, much shorter than it is now. I mean, if you were living until, you know, working until 55 to 65 and then dying very shortly thereafter, the onus wasn't on the company. Okay. But as people started living longer, the onus became much more on the company. When people are living into their late 70s, 80s, 90s and even becoming centenarians, in a lot of cases, they were paying out way more over the course of the years than people had actually worked and paid into the system. So they came up with the 401 K, and so most baby boomers that are either retired or on the cusp of retiring members of that generation that are typically ages 59 all the way up to 77, you folks need to be extremely careful about the decisions that you are making inside of your 401 K, and we definitely want you to be aware of some common mistakes that you can avoid. If you want to avoid surprises down the road and improve your overall financial retirement outlook.

Producer:
Yeah. And the number one mistake that we want to talk about here, Mike, is not saving enough for your retirement and your future. I mean, that's a that's a big one because, you know, if you don't have enough, uh, going in, you're not going to have enough coming out when you need it.

Mike Zaino:
This is this is so true. And it is probably the number one mistake that I see. In fact, most people that I know are only contributing what their employer will match, if any. And that's somewhere between three and maybe 6% if you are lucky. And then I see them, you know, putting more money in savings elsewhere. But that doesn't really make sense for me to me either, because if you have an employer that's willing to match you at whatever percent, you have the ability to go above and beyond. And so whenever possible, you should try to max out your 401 K contributions as well as if you're 50 or older, taking advantage of what are known as catch up contributions. Okay. And so for this year 2024, your annual 401 K contribution limit is 23,500. Uh, excuse me, $23,000. And then if you're over 50, you can contribute an extra 7500, which brings the total amount up to $30,500. Now, some of you out there listening are like, there's no way that I can put $30,500 away because I only make 40 or 50 or 60 or 70,000.

Mike Zaino:
And by the time taxes are taken out of it, I don't have a whole lot left. Um, that's why it's all the more important for you to get a plan in place, and maybe you're not able to max it out, but you do as much as you can afford. And instead of when you get a raise, increasing your lifestyle and taking that money home, well, if you put that money into your savings vehicle in your 401 K, and when I say 401 K, folks, I'm talking about any employer sponsored plan. So a 401 K, a 403 B, a thrift savings plan. If you're a federal employee, all of those are employer sponsored plans. Right? So not saving in retirement or not doing enough in retirement is probably the number one mistake. And so I'm going to recommend a minimum of 15% per year. And if you can't do that, try to work up to that. If you're already contributing more than 15%, I'm going to give you a high five because you're on your way to, you know, having money, significant money once you do retire.

Producer:
Another big mistake here, too, that people make with their 401 s. And, you know, these are very common in 401 s are target date funds. Um, it's just not a well performing asset here in the last couple of years. Um, I really we actually have some stats here that we'll run through, Mike, about the past five years of target date fund performance. Um, yeah. Just doesn't seem worth it to me.

Mike Zaino:
So first off, a lot of people don't know what a target date fund is, and all you're doing is picking a date in the future, and you're targeting that date for when you're going to need the money. And that's another mistake that people think that they're going to target the day that they retire. Well, if you've planned appropriately and accordingly, you probably shouldn't need the money when you retire, but may need it 5 to 10 years down the road. So I always like to, you know, talk about choosing a proper target date if that's the way that you want to go. But typically these are underperforming assets that are just loaded with fees. And so we did take a look at the last five years of performance just from one major issuer of target date funds, which is Vanguard. And Vanguard can be found in a lot of 401 K and 403 plan offerings. And so, you know, target date funds. Number one, they're typically, uh, in five year increments. So the closest one now would be the 2025. And that's the year 2025. And then it would go to 30, 35 4045 and 50 and so on and so forth.

Mike Zaino:
Right. If we just look at the past five years of the 2025, well, that overall performance is down 6.1%. Okay. Plus you're paying fees. If we look at 2030 Vanguard Target Retirement Fund of 2030, that's down 2.5% over the last five years. Plus you're paying those fees. And then if you look at the 2035 okay, which is still 11 years away, over the past five years, that's still down 1.8%. Plus you're paying the fees. So the lack of customization there, um, you have to understand that target date funds are designed just to be a one size fits all, which means that they are. Likely not aligned perfectly anyway with an individual's specific financial goals, their risk tolerance, their needs. And don't forget the fact that target date funds often have very high management fees, which can actually erode all of your gains or a significant portion of your gains over time, especially for long terme investors. So some target date funds may invest in other funds, which leads to layers of fees. And that can make it very challenging to understand the total cost of investing in a specific target date fund.

Producer:
Yeah. And that's that's absolutely right. And you talked about it being one size fits all. The you know, you might get lucky and it matches your particular needs. But you know luck relying on luck. That's not a strategy. I mean even a broken clock is is right twice a day. So you know there you go. You might you might get lucky, but you don't want to rely on that. You also have the risk tolerance not necessarily matching your situation or your particular needs. Great point.

Mike Zaino:
That's a that's a great point. So the level of risk taken by a target date fund is not going to align with every investor's actual risk tolerance. And so for some that could result in an overly conservative or an overly aggressive portfolio. And so, you know, if you don't understand what is offered to you within your 401 K or 403 B or TSP, please, please, please consult with a financial professional that can help you at least navigate what your plan is offering, and then maybe make some suggestions, provide some clarity on what they do, and then offer guidance on maybe what you might consider instead of just depending on a target date fund.

Producer:
And I just happened to know a guy. By the way, um, his name is Mike Zaino, and you can, uh, get in touch with him at MoneyMattersWithMike.com. Or you can give him a call at (704) 560-1573. All right. Some more mistakes here that people are making with their 401 K's. Boy this is a big one that I think a lot of people have probably unfortunately had to do with inflation and all of that going on. And it's taking a withdrawal from their 401 K plans.

Mike Zaino:
Yeah. Well, you know, when I meet with folks who have taken a withdrawal, I'm like, do me a favor, hold out your hand. And they normally hold it up with their palm up like I'm going to hand them something. I'm like, no, turn your hand over. And then I just kind of give them a gentle tap on the wrist and they're like, please don't do that again. And it's funny because it's not funny, but it's actually sad. A recent survey found that 1 in 4 boomers, that's 25%, have already taken a withdrawal from their employer sponsored plan. Okay. And the top reasons that they're taking out those withdrawals are pay down debt, uh, overcome health care expenses. Those are the top two. And that can be a very, very, very expensive mistake if you especially if you draw, withdraw that money before you reach age 59.5, which I call your IRS birthday. Why they chose 59.5, I have no idea. Those six months or, you know, either way to 59 or 60. They think your financial or your responsible at 59.5. Because if you take it before then not only are you going to have to pay the taxes on the money that you withdraw, but good old Uncle Sam, in the form of the IRS, is going to slap your wrist with an extra 10% penalty.

Mike Zaino:
So you know the solution there is to do everything that you can in your power possible to not take money out of your retirement accounts to early. Okay. And people are like, well, I'm just taking my own money. Um, I've seen them take loans, okay. Because a lot of a lot of 401 K's have loan provisions, and they mistakenly think that I'm just paying myself back. And the problem with that is you can take the loan, but they're going to charge you interest. And that interest, especially in the current interest rate environment, is is probably a little bit higher than what you could get money for on your own. And you got to remember that Albert Einstein once said, uh, called compound interest the eighth wonder of the world and said that people who understand it will earn it and people who don't, unfortunately, they're going to pay it. So please, please be careful to not live beyond your means. Uh, make sure you have an emergency fund in place to be able to assist you with any of those unforeseen, uh, expenses. Because we all know sometimes life gets in the way. But if you have the emergency fund in place, you should not need to tap into your retirement assets.

Producer:
Yeah, expect the unexpected. There is the is the rule that goes along with that. And you talk about what Micah a minimum. Minimum really of six months in that emergency fund of your expenses.

Mike Zaino:
Yeah. I mean, I like to see 6 to 12 months. I mean, just think about this real quick. If you had a year's worth of your expenses sitting in an account, that's only tap in case of an emergency. Doesn't that make you walk around with your shoulders back and your head held high, knowing that you can handle pretty much whatever life throws at you? Um, if you've got a couple weeks and you get hit with a a transmission that drops on a car that's out of warranty, your Hvac goes out. Trust me, I just had to replace one Thanksgiving week when we had that cold spell here in the Carolinas, and it was 55 degrees in my house. Thank God I had an emergency fund because I wasn't planning to replace a $7,500 unit. Um, but I had that in there and was able to write the check and didn't really feel it. So that's why you want to have that emergency fund? Because if I'd have had to tap into my retirement accounts, I would not have been a happy camper.

Producer:
Yeah, it's a not a fun situation to be caught, you know, in a situation where you have an emergency and you don't have the funds to cover it. Um, you're just kind of like, okay, what do I do now? And that's again gives you not only the funds to make that happen to, to make that payment, to be able to cover whatever expense might pop up. But it gives you peace of mind as well. And as we say, you can't put a price on that. Um, and then the fourth mistake people make with their 401 Mike. Uh, and this one is my my favorite here because you can avoid the other mistakes just by not making this one. Um, and the mistake is not seeking professional advice about your hard earned money.

Mike Zaino:
Hmm.

Mike Zaino:
I digress, right. Um. Of all of the folks that I have counseled over the past decade and a half, you know, what I've found is that those folks, whether they're a baby boomer, whether they're a generation X, whether they're a Gen Z, even a millennial like those who have sought professional advice, they tend to have much, much larger balances than those who don't. Okay. And why is that? Well, many people don't know that they have the ability to take their 401 K, um, quarterly or annual statement into a financial professional. Have that person review how they're allocated, where their money is, you know, really dive deep into what they're paying in fees, maybe, you know, again, you know, just just educate them on the different choices that they have within their plan because their employer just said, here, do this, sign this paper and let us know how much you want to contribute. You know, and so a lot of times they're just way too conservatively invested or way too aggressively invested. And by seeking that, uh, you know, financial professional advice and guidance that can give you clarity but also enable you to make those small tweaks in your plan that over the course of ten, 15, 20, 30 years, guess what that's going to do? I mean, people who don't seek the advice will have, you know, 33% of those who do seek professional guidance.

Producer:
Yeah. It's, uh, really can make the world of difference and just reach out, folks, to to Mike Zaino. Uh, give them a call. (704) 560-1573 to get that professional advice about your particular situation, it's going to be tailored to you. The conversation is going to be tailored to you. The you know, any advice is going to be tailored to you and your particular situation. So just reach out. You can also do it via Money Matters with Mike comm. That's MoneyMattersWithMike.com. And just click the contact page there and you'll you'll have access to Mike Zaino and all of the knowledge that he can bring your way and talk about that when people reach out, you know, because to all of the listeners of this show, we always offer, uh, the free full retirement plan consultation. It's a no obligation and no cost. Talk about that and what that experience is like for the listeners. Mike. Yeah.

Mike Zaino:
So I mean, the first call we're going to have is probably going to be a 15 minute, what I call a discovery call. I'll, you know, tell you a little bit about me and my background, and I want to find out a little bit about more about you, your goals, your dreams, everything there. But, you know, if we decide to move forward, we're going to dive into, uh, your situation, deep dive into your situation again. That's zero cost to our listener. And there's absolutely no obligation. You will only work with me if it makes sense for you. So again, that analysis that will provide just diving deep into your personal situation, I think we can examine how much you are paying in fees, uh, especially in those 401 S, 403 B's tsp. Right. Um, we can help you cut out any unnecessary costs, especially in IRAs or any other type of retirement savings account. If you do have an annuity that you haven't purchased, like in the last couple of years, um, it's probably not the right kind. And there's probably some better options for you. So we can kind of do an x ray with those and see if we can put you in a better situation. And then we can also help you with Social Security maximization planning and determine the appropriate time for you to start taking your benefits. Bottom line is, is we're going to compare, um, what is possible if you choose to work, you know, with us versus if you don't, okay, take the plan we give you and then you decide for yourself. But you know, again, if you haven't heard from your advisor lately, please talk to me. Get a second opinion, get a second set of eyes on your on your situation. If you're in good shape, guess what I'm going to tell you? You're in good shape. But if I notice anything that you might be able to improve upon, I'll offer suggestions. Okay? And we can help you set yourself on the path to retirement that you've always envisioned for yourself and for your family.

Producer:
And you can get started folks, by going to MoneyMattersWithMike.com. That's MoneyMattersWithMike.com. Or give Mike a call at (704) 560-1573. All right Mike, he's here. In our last few minutes, I want to talk about Social Security a little bit. And we went into, you know, a little bit of detail last week about, you know, talking about multiple streams of income. One of the most important that we are all, you know, all of us taxpaying Americans are going to receive, hopefully. And unless the Congress doesn't step up and do something about it, is Social Security. And it's really kind of, you know, the, the, for lack of a better tum, I guess, is close to universal of an income stream as people will have in retirement as possible. But people want to make the most of it. Right. So how do you go about maximizing your Social Security benefit? That is the question for our listeners today. And so a few steps here, Mike. Yeah.

Mike Zaino:
What? Yeah, what a great question to ask. You know, and whether you believe Social Security is going to be here or it's not going to be here, you know, it's my personal belief Social Security is not going anywhere. Because if if they were just to get rid of it, you're going to talk about a global financial meltdown, not just here in the United States. Uh, do I think it'll be here in the same format? Probably not. They're going to have to tweak some things just to make it long time sustainable. But, you know, because it's still going to be here. There are things you can do to maximize how much money that you get. And I think that first step is to work a minimum of 35 years, okay. The Social Security Administration, they take your highest paid 35 years that you worked in the labor force into account when they calculate your monthly benefit. And so as it stands right now, the maximum is $4,555 a month, which is nothing to sneeze at. Okay, that's great money. You'll have to have worked at least 35 years so that you don't have any zeros that are in your benefit calculation for any of those missing years. That's first and foremost. Number two would be earn an income equivalent to or greater than what's known as the wage cap. Okay. And there a lot of people don't even know that there is a wage cap when it comes to Social Security. So when you work, you pay taxes on your earnings for Social Security purposes only up to a certain point. And then that level varies from year to year. So in 2023, the wage cap was $160,200. So income beyond that threshold is not taxed from a Social Security standpoint. But to claim the maximum monthly benefit, your earnings much reach or exceed that wage cap for 35 years.

Mike Zaino:
So that is possible for some of our listeners, not probable for most of our listeners. But the more you earn, all right, the more you're paying into Social Security, which means ultimately, the more you're going to receive when you start claiming, uh, your benefit. And then number three would be consider delaying Social Security if you want to get the maximum delay it all the way to age 70 if and only if you have longevity in your family. So you are entitled to your complete monthly benefit, 100% of your benefit that is at your full retirement age, which is either 66, 67 or somewhere in between with two, four, six, 8 or 10 months at 66. Okay. Um, depending on the year that you were born. Well, every year that you delay filing your Social Security past your full retirement age, your benefit is growing by almost 8%, compounded each and every single year. And so in order to snag the maximum Social Security benefit, you have to hold off filing all the way until age 70. So, you know, while collecting $4,555 a month from Social Security might seem nice, most seniors, you know, that's a little bit unrealistic because most don't have enough, uh, income that high to qualify for the maximum benefit. But so if your Social Security is nowhere near $4,500, but rather in line with the current monthly average of around $1,800, it doesn't mean that you're doomed to a cash strapped retirement. So again, every year you delay, you're earning 8% more. Please don't forget we can help you establish your own personal pension that you can never outlive so that you're not relying just on Social Security.

Producer:
Yeah. So give Mike a call. Once again. That number is (704) 560-1573 for Mike Zaino 704560 1573. You can also go online to MoneyMattersWithMike.com.

Producer:
It's this week in history.

Producer:
So we're bringing it back. Mike. We haven't had a chance to check in on This Week in history in a little while, a little while, several weeks now. Uh, but we're doing it this week by, uh, talking about some big, important things that happened, uh, this week in our history. And the first one, a historical moment on February 3rd when the 15th amendment to the Constitution was ratified. That happened in 1870. Uh, the amendment guaranteed the right for Americans to vote regardless of race, color or previous condition of servitude. So regardless of whether or not they had been a slave before. Yeah.

Mike Zaino:
Can you imagine as a woman not being able to vote? Um, can you imagine as a person of color, not being able to vote? I mean, I can't I can't actually put myself into that position because one of the things that I love to do is exercise the power of my vote. You know, this year is an election year. Please, folks, make sure you get out there and vote and let your voice be heard.

Producer:
Something kind of along these same lines, Mike, in the sort of civil rights area, uh, on February 4th, 1913, civil rights icon and activist Rosa Parks was born. Um, she's the first lady of civil rights, as honored by the United States and the mother of the freedom movement as well. Um, boy, talk about a great, great figure in our history.

Mike Zaino:
And can you imagine the stance that she took back in 1913 and what was going on to to refuse to sit in the back of the bus? You know, I just think that that, you know, kudos to her for doing that.

Producer:
And one more here to share, because we're just about out of time as I look at the clock. But I gotta gotta get this one in. Yes we do. Being, uh, an Atlanta boy myself, um, on this date, February 5th, in 1939, the legend himself, the baseball Hall of Famer Hank Aaron, was born. Hammerin Hank, who played 23 seasons in the major leagues with the Milwaukee and Atlanta Braves. Uh, he was inducted in the Baseball Hall of Fame in 1982. Of course, he hit his 755th career home run. Uh, in July of 1976. He was atop the all time list until, of course, Barry Bonds broke that record in 2007 with an asterisk. Yes, steroids. And of course, uh, Hank Aaron passed away at the age of 86 back in 2021 at his home in Atlanta. Boy, there was no other like him. All right, Mike, well, that's going to do it for our time here this week, sir. But I thank you for everything that you bring to us each and every time. And, uh, we'll do it again next week.

Mike Zaino:
You know, despite our, our, our tongue fumbling, you know, throughout the show, I think this was a really, really good show. I hope our listeners got as much out of it as I did. Okay. I actually get a lot out of doing each and every one of these shows every single week. Matt, I thank you for everything that you bring to the show. But most of all, I have to thank our listeners, whether they're tuning in locally in the Charlotte Metropolitan Statistical Area, still fumbling with my tongue. Okay, or you're listening on podcast. Without you, we don't have a show. So whatever you're doing this weekend, I hope you enjoy it to its fullest extent. And as always, make it a great day.

Producer:
Thanks for listening to Money Matters with Mike. You deserve to work with a licensed financial and insurance professional who can offer strategies for protecting and growing your hard earned money. To schedule your free, no obligation consultation, visit MoneyMattersWithMike.com or pick up the phone and call 704 560 1573. That's 704 5601573 not affiliated with the United States government. Mike Zaino does not offer tax legal or investment advice. Consult with your tax advisor or attorney regarding specific situations. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. This information is intended to be educational in nature and does not provide a guarantee or a specific result. All copyrights and trademarks are the property of their respective owners. Amara Life assumes no responsibility or liability for the content of this message. The information contained herein is provided on an as is basis with no guarantees of completeness, accuracy, usefulness, timeliness, or the results obtained from the use of this information.

Producer:
Fixed annuities, including multiyear guaranteed rate annuities, are not designed for short terme investments and may be subject to restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.

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