Summary of "Can I Pause Retirement Contributions?" Episode of "Jill on Money with Jill Schlesinger"
Podcast Information:
- Title: Can I Pause Retirement Contributions?
- Host: Jill Schlesinger, CFP®
- Publisher: Audacy
- Release Date: January 22, 2025
In this episode of "Jill on Money with Jill Schlesinger," host Jill Schlesinger addresses listener questions about managing retirement contributions, financial planning, debt management, and understanding Social Security benefits. Jill provides insightful, jargon-free advice to help listeners make informed financial decisions.
1. Deciding When to Hire a Financial Advisor (00:03:20)
Listener Question from Mike:
Mike is contemplating whether to hire a financial advisor and seeks clarity on what a detailed financial plan should include. He’s also unsure if he needs a financial plan at his current stage as a DIY investor and wonders when it’s appropriate to transition to professional assistance.
Jill’s Response:
Jill emphasizes that hiring a financial advisor isn't strictly age-dependent but is more about the complexity of one’s financial situation. Significant life changes—such as starting a business, changing income sources, or handling diversified investments—are indicators that professional financial planning might be beneficial.
Jill Schlesinger (00:04:00): "This is not an age-based issue... it is a complexity issue."
She highlights the value of scenario planning, where a financial advisor can provide an objective perspective, uncovering outcomes that the individual might not have considered independently.
Jill Schlesinger (00:06:17): "The real benefit of a financial planner and one that is a fiduciary, is that it will give you a separate set of eyes on a situation that may lead you to one different outcome than you had even ever considered."
2. Financial Planning for Peace Corps Service (00:06:50)
Listener Question from Anonymous (24 years old):
A 24-year-old listener preparing to join the Peace Corps seeks advice on effectively allocating $19,000 in savings. She has funds spread across a Roth IRA, 403 account, brokerage account, high-yield savings, and a checking account. She also has $20,000 in student loans, which she plans to defer during her service.
Jill’s Response:
Jill commends her for her financial preparation and advises categorizing her funds based on accessibility over the next two years. She recommends keeping money needed within two years in a high-yield savings account or a 2-year Certificate of Deposit (CD) to ensure liquidity and safety.
Jill Schlesinger (00:08:00): "Any money that you think you could use that you need to access within the next two years... should keep in your high yield savings account."
For long-term investments, she suggests allocating funds to broad market exchange-traded funds (ETFs) or a bond index fund, considering her young age and the extended investment horizon.
Regarding student loans, Jill advises evaluating the interest rates to determine if additional payments are beneficial.
Jill Schlesinger (00:09:00): "If you believe... this is long-term money, then I think I would consider just using the same exchange traded funds and not sweat about it."
3. Using a Margin Loan to Pay Off Debt (00:12:20)
Listener Question from Ray:
Ray is considering taking a $60,000 margin loan against his $800,000 investment portfolio to pay off $20,000 in credit card debt and replenish his emergency fund after unexpected home repairs.
Jill’s Response:
Jill discusses the potential benefits and risks of using a margin loan. She notes that if the margin loan interest rate is lower than the credit card rates, it could be advantageous. However, she cautions about the risk of a margin call if the value of the investments declines significantly.
Jill Schlesinger (00:12:21): "The thing about a margin loan is that you're not taking so much money at margin that even if the market went down, there would be ever a margin call."
She advises assessing cash flow to ensure the margin loan is manageable and not opening up vulnerabilities in case of market downturns.
4. Understanding Social Security Cost of Living Adjustments (COLA) (00:15:03)
Listener Question from Rich:
Rich seeks clarification on how Social Security’s Cost of Living Adjustments (COLA) work. He wonders if his benefits will increase annually based on inflation once he starts receiving them.
Jill’s Response:
Jill explains that the Social Security Administration announces an annual COLA to adjust benefits based on inflation. This adjustment ensures that the purchasing power of Social Security recipients is maintained over time.
Jill Schlesinger (00:15:03): "Every year the Social Security Administration will announce what is called a cola... people who are receiving Social Security income benefits... get a two and a half percent income increase in their base level of Social Security payments."
She clarifies that while the initial benefit is determined by one’s earnings record, the COLA is applied annually after benefits begin.
5. Pausing Retirement Contributions to Rebuild Emergency Savings (00:15:10)
Listener Question from Robert:
Robert and his spouse, aged 40 and 41, have amassed $660,000 in retirement savings but have less than $10,000 in a regular brokerage account. After using emergency funds for house repairs, Robert considers pausing his Thrift Savings Plan (TSP) contributions for a year to rebuild his emergency fund while continuing to max out Roth IRAs.
Jill’s Response:
Jill, along with co-host Mark Zandi, supports Robert’s decision to temporarily pause TSP contributions to rebuild the emergency fund. Given their substantial retirement savings and military pension, reallocating funds to secure emergency reserves is deemed a prudent move.
Jill Schlesinger (00:16:18): "I would absolutely encourage you to do that."
Mark Zandi concurs, reinforcing that a 12-month pause, while still maintaining Roth IRA contributions, is a sensible approach given their financial standing.
Mark Zandi (00:16:07): "Just do it."
Conclusion and Additional Resources (00:17:01)
Jill concludes the episode by encouraging listeners to reach out with financial concerns via the jillonmoney.com website and promotes her book, "The Great Money Reset," which offers strategies to transform financial chaos into opportunity.
Jill Schlesinger (00:17:01): "It's perfect for this time of year... 10 bold steps that help you turn chaos into opportunity."
Notable Quotes:
- Jill Schlesinger (00:04:00): "This is not an age-based issue... it is a complexity issue."
- Jill Schlesinger (00:06:17): "The real benefit of a financial planner and one that is a fiduciary, is that it will give you a separate set of eyes on a situation that may lead you to one different outcome than you had even ever considered."
- Jill Schlesinger (00:08:00): "Any money that you think you could use that you need to access within the next two years... should keep in your high yield savings account."
- Jill Schlesinger (00:12:21): "The thing about a margin loan is that you're not taking so much money at margin that even if the market went down, there would be ever a margin call."
- Jill Schlesinger (00:16:18): "I would absolutely encourage you to do that."
Key Takeaways:
- Financial Advisors: Consider hiring a financial advisor when your financial situation becomes complex, regardless of age.
- Emergency Savings: Maintain accessible funds for short-term needs, especially during periods of limited income.
- Debt Management: Weigh the benefits and risks of using investment leverage, such as margin loans, to manage debt.
- Social Security: COLA ensures that Social Security benefits keep pace with inflation after they begin.
- Retirement Contributions: It's acceptable to temporarily pause certain retirement contributions to strengthen emergency savings, particularly if you have a robust retirement portfolio.
This comprehensive summary encapsulates the vital discussions and insights from the episode, providing valuable guidance for listeners navigating their financial journeys.