Should You Invest 15% For Retirement If You Already Have A Pension?

Summary

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.

Transcript

[Dave Ramsey]

Foreign. This episode is sponsored by SmartVestor. Connect with an investing pro for free at RamseySolutions.com invest. You're listening to Ramsey Everyday Millionaires where we talk investing, retirement, building wealth and outrageous generosity.

[Ken Coleman]

We've got Sarah, who's in Houston, Texas. Let's go. What's going on? Sarah?

[Sarah]

Hi. I am a stay at home mom and my husband and I don't have any debt other than our mortgage. And we live on a budget, but it's pretty tight and I find every time I'm saving money, I end up dipping into that. My question is my husband has a pension because he works for the city, but we also give to a different investment account like for retirement, just in case the pension gets mismanaged. And I'm just wondering if we're overdoing it.

[Ken Coleman]

Well, tell us the numbers. What percentage goes, what percentage goes to his pension and what percentage are you guys putting aside in the additional investment accounts?

[Sarah]

So 12% goes to the pension and I think it's Almost, it's almost 15% goes to the 457.

[Ken Coleman]

Wow. Okay. Typically what we would say is treat the pension like half. So maybe in this case you could treat it like 6% and then you do the other 9% to an, to another investment account that you have more control over. So in that way you could pull back and I think having that extra 6% would help things feel less tight. Yeah.

[Sarah]

Yes, for sure.

[Ken Coleman]

Yeah.

[Sarah]

And then maybe help us save for kids college a little bit easier.

[Dave Ramsey]

Let's talk about income. So it feels like you guys are pretty good at the budget and it's just an income issue. Obviously you're stay at home and that's the season of life and it's a great choice. What is he making and what does he do for the city?

[Sarah]

He is a firefighter and his income varies with overtime. So it's about 5,000amonth, I think is our average.

[Dave Ramsey]

Yeah. So 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 or whatever it ends up being, you know, and so he's got. My point is he's got a really unique situation where he's got some downtime where he could be making some money. And this is not necessarily something he has to do for the rest of his life, but certainly in this season where there's just one income. Adding some more income right now I think is a must for you guys. Number One to have some margin because you guys are disciplined. So imagine how much more progress you guys could make financially given your discipline if you had more coming in. You tracking with me?

[Sarah]

Yes. I think I feel like the time off gets sucked up with things like fixing cars and fixing the house, and.

[Ken Coleman]

That'S when he comes back and was part of the household.

[Dave Ramsey]

I get that. All I'm saying is I get that. But that's still a choice.

[Sarah]

Yeah.

[Dave Ramsey]

You guys have got to make choices right now. You got little ones, you're trying to save for them, and you're gonna have to make a choice. What's most important I can get. I can see one. One day a week, he messes around with an old car or something like that. That's a hobby. I'm all about hobbies. I got my hobbies, and I. They are religious for me. Okay.

[Sarah]

Because I need them.

[Dave Ramsey]

Oh.

[Sarah]

Fixing the cars is more that. We drive old cars that need fixing all the time.

[Dave Ramsey]

But again. But again, more money means better cars. More money means investing for the kids, colleges or their future education.

[Ken Coleman]

How old are the kids?

[Sarah]

They range from 12 to one.

[Ken Coleman]

Oh, mama.

[Dave Ramsey]

How many do you have?

[Sarah]

Four.

[Dave Ramsey]

Oh, boy.

[Ken Coleman]

You know what? I'm not going to lie. Sarah, when you first. When I first started talking, I said, sarah sounds stressed.

[Dave Ramsey]

Yeah.

[Ken Coleman]

And you. You are stressed.

[Sarah]

I am.

[Ken Coleman]

You're doing a great job, though. To Ken's.

[Dave Ramsey]

Yeah, you're doing great.

[Ken Coleman]

You guys have got a handle on the budget. I love that. What I really love is that when I asked you direct questions about the numbers, you knew them, which lets me know you're on top of this. And, you know, I think Ken is right. If there's a way to bring in a little bit more money to.

[Dave Ramsey]

To.

[Ken Coleman]

To bring some. Some breathing room, it would probably help you guys out over time. I'm not sure what that is, but I think that there's some margin to make that happen. Either way, though, I think dropping that, investing down by 6% and taking advantage of the pension that is there, I think that's going to give you guys the breathing room that you're looking for. All right.

[Dave Ramsey]

By the way, just a quick follow up on this. For anybody that feels like they're in this situation, what I would do is reverse engineer this thing and go, how much more money this is? For people who know their budget like she does, how much more money net to our household budget every month would take us beyond just some breathing room, but would be like, oof, we got some momentum with this amount of money.

[Ken Coleman]

Yeah.

[Dave Ramsey]

So if that number's 500 for some of you, get after that, six grand a year gross. These are all gross numbers. So, you know, I'd like to see in this situation a fireman like this, he's got some skill. I'd like to see him aim for 25 to 30 grand additional income a year. Once you pay taxes on that, that's going to more than give them breathing room and actually allow them to make progr.

[Ken Coleman]

That's right.

[Dave Ramsey]

This is the way I think you have to separate this out so it doesn't feel so overwhelming, like, oh, I got to get another job or go, well, listen, for a season, yeah, you need to bring in an additional 25 grand. But we don't focus on the work. We focus on what the freedom. What are the options as a result of more money? More money. I'm going to tell you something. I know a lot of rich people, and I can break it down to this. You know what rich people have?

[Ken Coleman]

Tell me.

[Dave Ramsey]

Freedom.

[Ken Coleman]

Options.

[Dave Ramsey]

All kinds of options.

[Ken Coleman]

Yeah.

[Dave Ramsey]

To do whatever the flip they want whenever they want. And so we don't. We don't have to aim for that. We're not keeping up with the Joneses. I'm simply saying that if you talk to wealthy people, what they love most about being wealthy is not the actual money. It's options choices. And they've got some very clear things. Choices. They want to give their kids choices for education. So if that's the issue, I got to bring in some more income in their situation because they're already tight and they're living disciplined. So that's half the battle.

[Ken Coleman]

That is half the battle. That's good. That's good, Ken. I mean, luckily for them, they don't have any debt besides their mortgage. But even with that, to make the progress to pay this off quickly, it's going to be.

[Dave Ramsey]

Yeah. So let's play your point out. So now let's take. Let's say they get extra money and it takes care of the kids. Education futures. But then you got this sweet couple that's worked really hard, and they've been great parents, great Americans. Well, they want something left over, too, when they get to 65.

[Ken Coleman]

That's right.

[Dave Ramsey]

So that additional 25. Don't get me started with you and your investment calculator.

[Ken Coleman]

I know, I know, I know.

[Dave Ramsey]

Plugging in those numbers for themselves. And all of a sudden now they've got a really, really comfortable retirement options when you're old.

[Ken Coleman]

Yeah, that's. This is very true. And let's talk about this in a bigger picture because she, Sarah kind of hit on something that I think a lot of people feel they're in baby step four and there is kind of this feeling like once I hit baby step four, like there should be no. It should. There should be no tight feeling anymore. I should be able to just go. And. And sometimes people hit baby step four and they're not feeling that freedom, that options that you're talking about. And the truth is some of it can be income like they're facing here, some of it can be season of life. Because if you're. She's a stay at home mom, but if you've got two kids in daycare, if you've got kids in private school, Ken, there's different things that can put strain on your budget. And baby step four, that is just for a season. And 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, you know what I'm saying?

[Dave Ramsey]

Great way of saying that. That's really good. That's emotionally describes that, you know, because everybody like ruin briars and little branches hitting you in the face and it's hard to walk. I love that. Then you eventually see that clearing. That's really good. And that's why the extra income. Yes, yes, it's hard, yes, it's inconvenient. But look, that's the reality.

[Ken Coleman]

I mean, over 40% of Americans have side hustles. There's a reason for it.

[Dave Ramsey]

Yeah.

[Ken Coleman]

And the choice, because it's expensive, as.

[Dave Ramsey]

My brother used to say.

[Ken Coleman]

I know, that's right.

[Dave Ramsey]

It's expensive. Expensive things are expensive these days.

[Ken Coleman]

You got four kids trying to go to college, you got a kid, you know, all of that matters. Um, if you're in a season of life where you're trying to get pregnant and you're paying for, you know, fertility treatment, all these things. And so basically what I'm trying to do in this moment is kind of normalize the feeling that 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. And the solution to that is, hey, maybe we bring in a little bit more money for the short term, or maybe we just accept it's a little tighter right now, but it's only going to be for the next three years and then there's the clearing in the woods that we talked about.