Summary of "Should You Invest 15% For Retirement If You Already Have A Pension?" – Ramsey Everyday Millionaires

Release Date: December 27, 2024

In this insightful episode of Ramsey Everyday Millionaires, hosts Dave Ramsey and Ken Coleman delve into the complexities of retirement investing, particularly focusing on whether it's advisable to invest 15% for retirement when one already has a pension. The episode features a candid discussion sparked by a listener, Sarah from Houston, Texas, who seeks guidance on managing her family's retirement investments alongside a stable pension.

Introduction

The episode opens with Dave Ramsey introducing the topic of investing, retirement, building wealth, and generosity. The hosts emphasize the importance of disciplined financial planning and explore real-life scenarios to provide practical advice to listeners.

Listener's Dilemma: Sarah's Situation (00:22 – 04:20)

Sarah's Profile:

• Location: Houston, Texas
• Family: Stay-at-home mom with four children aged 1 to 12
• Financial Status: No debt except for a mortgage
• Budget: Tight but strictly adhered to
• Savings Challenge: Regularly saving but often dipping into savings

Retirement Contributions:

• Pension: Husband's income includes a pension, contributing 12%
• 457 Plan: Additional retirement investment contributing almost 15%

Sarah's Concern: Sarah is concerned that her family might be over-investing for retirement by contributing nearly 27% combined into pension and 457 plans, especially given their tight budget and the unpredictability of dipping into savings.

Notable Quote:

Sarah (00:27): "I’m just wondering if we’re overdoing it."

Expert Advice: Ken Coleman and Dave Ramsey Respond (01:01 – 04:20)

Ken Coleman's Recommendation: Ken suggests treating the pension contributions as half, effectively allocating 6% to the pension and redirecting the remaining 9% to another investment account that offers more control. This adjustment aims to ease the financial strain and provide additional savings flexibility.

Notable Quote:

Ken Coleman (01:43): "Treat the pension like half. So maybe in this case you could treat it like 6% and then you do the other 9% to another investment account."

Dave Ramsey on Income and Budgeting: Dave acknowledges that Sarah and her husband are proficient with budgeting but identifies income as the primary issue. He highlights the necessity of increasing household income to create financial breathing room and advance their financial goals.

Notable Quote:

Dave Ramsey (02:19): "What other skills does he have, experience does he have that's transferable? Because one of the things about a fireman's schedule is he's got those three on, four off... Adding some more income right now I think is a must for you guys."

Strategies for Increasing Income (04:35 – 06:45)

Assessing Current Occupation: Dave encourages leveraging the husband's skills as a firefighter to pursue additional income streams during downtime. He emphasizes that this is a temporary strategy to navigate through a season of life reliant on a single income.

Goal Setting for Extra Income: The hosts recommend aiming for an additional $25,000 to $30,000 annually. This incremental income is projected to significantly enhance financial stability and provide options for investing in children’s education and personal financial growth.

Notable Quote:

Dave Ramsey (05:15): "If that number's 500 for some of you, get after that, six grand a year gross. These are all gross numbers... He’s got some skill. I'd like to see him aim for 25 to 30 grand additional income a year."

The Value of Extra Income: Dave emphasizes that additional income brings freedom and options—key elements that wealthy individuals value highly. This extra financial cushion allows for greater flexibility in making life choices without the constant stress of a tight budget.

Notable Quote:

Dave Ramsey (06:02): "Freedom. All kinds of options. To do whatever the flip they want whenever they want."

Navigating Financial Seasons and Overcoming Tightness (06:45 – 08:45)

Understanding Financial Seasons: Ken Coleman elaborates on the concept of "baby step four," where some households may still feel financially constrained despite following the Ramsey plan. Factors such as childcare, private schooling, and other life events can impose additional strain on the budget.

Normalizing Financial Tightness: The hosts reassure listeners that feeling tight is a normal part of certain financial seasons. They advocate for temporary solutions—either increasing income through side hustles or accepting the tightness until financial circumstances improve.

Notable Quote:

Ken Coleman (07:01): "If you are in baby step four and it's a little bit tight, it doesn't mean that you're doing something wrong. It simply means that you have chosen a value for that time period and it's okay."

Encouraging Practical Actions: Dave and Ken encourage listeners to assess their specific situations and take actionable steps towards increasing their income or adjusting their investments to alleviate financial pressures.

Notable Quote:

Dave Ramsey (08:45): "It's hard, yes, yes, it's hard, it's inconvenient. But look, that's the reality."

Key Insights and Takeaways

1. Balanced Retirement Contributions:

   • Evaluate the proportion of income allocated to pensions and other retirement accounts.
   • Consider treating pension contributions as a partial investment to maintain financial flexibility.

2. Income Diversification:

   • Explore additional income opportunities leveraging existing skills and experience.
   • Aim for specific income goals to create significant financial breathing room.

3. Value of Financial Freedom:

   • Extra income provides options and freedom, which are essential for long-term wealth building.
   • Wealth is not solely about accumulating money but having the flexibility to make life choices.

4. Understanding Financial Seasons:

   • Recognize that feeling financially tight can be a temporary phase tied to life circumstances.
   • Implement strategies like side hustles or temporary budget adjustments to navigate through challenging periods.

5. Emotional Support and Reassurance:

   • Acknowledge the emotional stress associated with tight budgets.
   • Reinforce that disciplined budgeting and strategic adjustments can lead to achieving financial goals.

Conclusions

In this episode, Dave Ramsey and Ken Coleman provide empathetic and practical advice to Sarah and similarly situated listeners facing the challenge of balancing pension contributions with other financial obligations. The key takeaway is the importance of flexibility in financial planning—adjusting investment strategies and seeking additional income when necessary to maintain stability and achieve long-term financial freedom. By treating pensions as part of a broader investment strategy and exploring ways to increase household income, families can navigate tight budgets and move closer to their financial aspirations.

Final Notable Quote:

Ken Coleman (08:08): "If you can decide, hey, we’re going to side hustle for a little while, you will come to that point where there’s a clearing in the woods."

This episode serves as a valuable resource for individuals and families striving to optimize their retirement investments while managing current financial pressures. The blend of personal stories and expert advice offers a roadmap to achieving financial peace and building extraordinary wealth through disciplined and informed decision-making.