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- [00:00]
Farnoosh Torabi
Ryan Reynolds here for Mint Mobile. You know one of the perks about having four kids that you know about is actually getting a direct line to the big man up north. And this year he wants you to know the best gift that you can give someone is the gift of Mint Mobile's Unlimited Wireless for $15 a month. Now you don't even need to wrap it. Give it a try@mintmobile.com switch $45 upfront payment required equivalent to $15 per month new customers on first 3 month plan only taxes and fees, extra speed slower above 40 gigabytes on unlimited. See mintmobile.com for details. It's better over here at&t customers switching to T Mobile has never been easier. We'll pay off your existing phone and give you a new one free. All on America's largest 5G network. Visit t mobile.com carrierfreedom to switch. Today pay off up to $650 via virtual prepaid MasterCard in 15 days. Free phone up to $830 via 24 monthly bill credits plus tax qualifying port in trade in service on go 5G next and credit required. Contact us before canceling entire account to continue bill credits or credit and balancing required. Finance agreement is due. So Money Episode 1765 the best of so Money 2024 Smart Retirement Strategies. You're listening to so Money with award winning money guru Farnoosh Torabi. Each day get a 30 minute dose of financial inspiration from the world's top business minds, authors, influencers and from Farnoosh yourself. Looking for ways to save on gas or double your double coupons. Sorry, you're in the wrong place. Seeking profound ways to live a richer, happier life. Welcome to so Money.
- [01:37]
Katie Donegan
It was five years ago we actually reached what we would say is our fine number. So our target was very stereotypically 1 million invested which at the 4% rule gives you 40 grand a year to live off years ago. And we're like that's it, we're done. Goodbye world.
- [01:55]
Farnoosh Torabi
Welcome to so Money everybody. I'm your host Farnoosh Tarabi. It is Monday, December 23, 2024. For the next several episodes we're going to be revisiting some of the best episodes on so Money this year. The episodes where, you know, we learned some new things, new insights, new ways to live richer, all around particular themes. And today we're focusing on the theme of retirement. The the many retirement strategies that we learned over the past year thanks to our many guests. How to plan for, save for and enjoy retirement with confidence wherever you are in your stage of life, whether you're just starting out, if you're navigating entrepreneurship, Dreaming of early retirement we have excerpts from many guests this year who provided advice for all of us. And we pulled the highlights from Ann Tergeson from the Wall Street Journal, Jean Smart, founder of Penelope Hannah Cole, the creator of Sunlight Tax and early retirees, Katie and Alan Donegan. In this episode, we're going to relearn or learn for the first time how much you need to retire, how much is enough, the benefits of tax advantaged accounts like Roth IRAs, and what small business owners can do to catch up on their savings. First, let's go back and hear from Jean Smart. She's the founder of Penelope, a fintech startup platform revolutionizing retirement solutions for small business owners. Jean's story really personal. She's the daughter of Korean immigrants who ran small businesses without a retirement plan, so she saw firsthand the risks of not saving for the future. In our full interview, Jean and I discussed the state of retirement readiness in America, why small business owners often delay setting up their retirement plans, and how new tax incentives are making it easier and more affordable than ever. In this excerpt, Jean explains why now is the time to act and the costs of not doing so.
- [03:57]
Jean Smart
The numbers are pretty bleak and we always think there's a lot of opportunity to be had. But right now, just at the very highest level, 1 in 4Americans have nothing safe for retirement. So when we say zero, not $1 2/3 are living paycheck to paycheck. And in certain metropolitan areas, even households or families making over 200,000 are living paycheck to paycheck. I think we've done a great job of as a culture of showing how easy it is to spend money. There's so many different platforms. Buy now, pay later, do things on layaway. We're always delaying gratification, but we haven't done enough to probably share in saving and investing, et cetera. Although I think there's a lot of hope for millennials because millennials have so much access to information and they've got more time to actually. So that leaves about 57 million Americans in that slot that are not prepared. Combine that with some general stats around longevity. So in 2024, every day, 12,000 people are turning 60 every every day. And if you turn 60, the chances of you living to 90 is one in three. If you're high net worth, ultra high net worth, it's significant, you'll have more. It's presumed that you'll have more resources so it isn't just families or individuals. As a society, as a country, there are some major concerns that we have. I think very recently Larry Fink of blackrock put an op ed out just around the state of retirement and how we need to come together to do so much more. The good thing is a majority of Americans, about 90% of us, work in these small businesses, very small businesses. And so most of the small businesses do not have a retirement savings vehicle, which has been the standard way. It's a really simple, easy way. You work, you put a little bit away the power of compounded interest. You're not paying income tax on the money that you stuck away. It's been a really good system for 40 years. There's been a big push both at the federal and state level with bipartisan support to actually trigger this, knowing that 10 years from now, 5 years from now, 20 years from now, the situation.
- [06:33]
Alan Donegan
Is a little bleak.
- [06:34]
Jean Smart
So Secure 2.0, which is new legislation that came out last year providing wholesale, broad based, significant tax benefits up to 16,500 for the first three years for small businesses who have not activated a plan. Make the cost almost de minimis, certainly with our plan, I think while it is dire and there's a lot to do, you can see both at the federal, state and even local level, people are starting to act and they're starting to require. So in addition to, I always call it so the carrot and stick, at the federal level you've got these tax incentives, but at the state level you've got the stick. So California, Oregon, Illinois, several states are moving towards implementing fines if you are not set up. So I think that will be the big draw in terms of getting people to activate more.
- [07:37]
Farnoosh Torabi
That was Jean Smart, creator of the Penelope Retirement Platform. If you're a small business owner, take Jean's advice to heart because the cost of not offering retirement benefits, while it's an expense today, it will far outweigh the cost of starting a plan in the future. And there are tools and incentives now that make saving accessible for businesses of all sizes. Check out the full interview with Jean where we talk about her entrepreneurial journey, how Penelope, her company is helping to close the retirement gap, and why saving just a little bit now can compound into a pretty secure future. The link to that episode is in our show Notes Shifting Gears to talk about taxes and retirement, which are inextricably linked. Few people explain this better on the show than Hannah Cole, the creator of Sunlight Tax. Han is a tax expert and an artist and her mission is to demystify taxes for creatives and small business owners. In our full interview, Hannah and I discussed everything from self employment taxes to how artists can build long term financial security. In this excerpt, she shares one of the most powerful tools for retirement savings and the cost of putting off investing in an Iraq. You talk about how to stash an extra $130,000 in your savings. I'm confused. I want to know all about this because I would like that. That sounds like. That sounds like a good deal.
- [09:09]
Alan Donegan
Yeah, so it is. It's a little bit my hang up that I really want. Especially creative people who I think often discount the fact that they're ever going to be able to retire or save enough money to retire. So I dedicate space in my MA class every single time to showing people what the math of compound interest looks like over a career span. And basically if you are investing. So this hopefully for anoosh, this is your audience, right? This is why we listen here. If you're investing over your career span, I show the math with. When you're investing using tax advantaged accounts like an ira, how much money your money earns in your last year. So basically the mistake that people make is they put off funding their ira. They're like, oh, I'll do it next year. It's like not a. Not a big deal, I'll just wait a year. But I actually show you the math that if you put it off for one year, it costs you $130,000 over the span of your career. Because that is how much money your money itself makes in its final year in there.
- [10:24]
Farnoosh Torabi
Yeah, the, the maximum contribution this year.
- [10:27]
Alan Donegan
I think is 6,500. Unless you're over 50.
- [10:31]
Farnoosh Torabi
Right. Over 50 is catch up contribution. We showed this in my investing masterclass in January, which I just. How much? Like $10 a day or funding your IRA in a year, you know where that will leave you? That one year's payment in. In the future. It's really powerful. And the math does not lie.
- [10:50]
Alan Donegan
The math doesn't lie. And I think a lot of us who either felt some aversion to numbers or we were creative and sort of told we were bad with money, which I find to be just not really true. Ultimately, I think a lot of us just discount the fact that it's possible. And so it's part of why I'm so dedicated to showing that math. Like no, no, let's take a moment and look at this growth curve of your money because it's kind of incredible how powerful compound interest like if you are making 8% annual return. And of course your listeners will know that the stock market goes up and down. 8% is an average, not a guarantee. But, but if you're making 8%, the compound interest, whatever amount you put in this year, it will double in nine years. Every nine years your money will double. I mean, if you've, you know, done the math on doubling, you can see that it starts to form a curve where it goes up and up and up and up and up.
- [11:50]
Farnoosh Torabi
Hannah's advice is clear. Take advantage of the Roth IRA while you can. It's one of the most effective tools for tax advantage retirement savings, especially if you're just starting out or if you have unpredictable income. And that full conversation with Hannah, which includes more on her tax strategies for small business owners and creatives. That link is in our show Notes. Now let's hear from Katie and Alan Donegan. They're a couple who retired in their 30s and 40s with a million dollars in the bank. How'd they do it? In our conversation, we talked about their strategies, their decision to leave compulsory work, their current nomadic lifestyle, and how they calculated exactly how much they needed to retire early. In this excerpt, Katie and Alan break down the 4% rule. It's a simple formula that helped them determine their retirement number and why they're big believers in low cost index funds for long term growth.
- [12:50]
Katie Donegan
It was five years ago we actually reached what we would say is our fine number. So our target was very stereotypically 1 million invested, which at the 4% rule gives you 40 grand a year to live off years ago. And we're like, that's it, we're done. Goodbye world.
- [13:06]
Alan Donegan
What were you doing?
- [13:07]
Farnoosh Torabi
What was, what was so bad about the compulsory work that you wanted to get out of that? Well, yours.
- [13:12]
Hannah Cole
You enjoyed your compulsory work. But I was in the corporate world. I used to be an actuary and it was okay. I enjoyed the people I worked with. I But it was kind of meh, it wasn't what I loved doing. So, I mean, that's why I quit my job.
- [13:30]
Katie Donegan
And I think I got to the stage where commuting and daily alarm calls, daily alarm clocks was not fun anymore. And I am a big fan of no alarm clock and just getting up whenever the world wants you to.
- [13:45]
Farnoosh Torabi
So we're gonna go a little bit back and forth because maybe I should have started with the before, the during and the now. But I want to get people really excited for this potential of following in your footsteps. So describe more of this current lifestyle that you have and you mentioned you own nothing requires keys. No car, no home. How do you get around? How do you decide where to go next? What are the things that you've decided not to invest or spend on that then allows you to have this flexibility of travel?
- [14:19]
Hannah Cole
Well, to answer some of your questions. So how do we get around? We tend to stay mostly in sort of medium to large ish cities, so we like to walk everywhere if we can. So we'll stay in a neighborhood that allows us to do that, to walk to the cinema, to walk to restaurants and cafes where we get our laptops out and work on our projects.
- [14:41]
Katie Donegan
And fitness is very important. So we just kind of decide. Like the first two months of this year were spent on the beach in Mexico. And there's a wonderful place called Puerto Vallarta, has amazing food.
- [14:52]
Farnoosh Torabi
Heard of it?
- [14:53]
Katie Donegan
Apartment right on the beachfront. So you go along the beach in the morning, swimming, and then like do some bits. And it's just a wonderful lifestyle. And the no keys things means we get to borrow other people's houses via Airbnb hotels.com finding local people.
- [15:10]
Hannah Cole
Because people say to us, don't you miss not having the home? And I say, well, I do have a home. It just changes way more frequently than most people. We'll just move from one home to the next. And it might sound cheesy, but, Alan, you are my home.
- [15:28]
Farnoosh Torabi
It's the two of you. Are there any pets? Are there any dependents?
- [15:32]
Katie Donegan
No pets. No dependents. We decided a few years ago that kids affected our spreadsheet a lot, and we weren't that excited. And there were lots of role models that we saw not enjoying kids, so we just decided we wouldn't do them.
- [15:47]
Farnoosh Torabi
A lot of we in these conversations, but were there moments where it was. I felt this way and. And she felt. Katie didn't agree. And I'd love to get into sort of the mess of it a little bit just because I don't. I can't imagine. It was like, okay, this is it. Great. Thumbs up, let's do this. Smooth sailing. Puerto Vallarta, here we come.
- [16:08]
Hannah Cole
You're absolutely right. Vanish. There was. There was some interesting times that we say where we struggled to get on the same page. So to go back a bit of a way, when we first met, we were kind of polar opposites in terms of our upbringings. Alan's dad was very entrepreneurial, very like, let's just make stuff up and see what happens. And Alan was very much of that mindset. And I had come From a very traditional upbringing of here is the standard path that is set out for you. You know, get the good grades, to be able to go to the good colle, to then get the good corporate job. And that's what success and happiness is, is to have that good job. So when Alan, when I met Alan and he said, you may don't have to follow that path. You know, like, there's other ways of living. And I just like shut down at that point. I was like, what do you mean? This does not compute. This, I don't understand you. And there was a lot of ways that we clashed in the early days. And actually, I mean, we met 19 years ago over those nearly two decades. We're still figuring it out. It's still a process to align where we're going and what we want to do in life.
- [17:23]
Katie Donegan
Yeah. And the traditional background tends to point out everything that could go wrong with entrepreneurship or financial independence. Whereas I was always like, oh, we could do this and here's everything that's possible. And that really pulled us in opposite directions.
- [17:39]
Hannah Cole
Yeah. Because I was very fear based, very kind of what's the rest of my tribe going to think? To put it back into, you know, prehistoric terms of when we evolved was like, what, what, I might get kicked out of the tribe if I do this. What are other people gonna think? This is weird. Feel guilty.
- [17:57]
Katie Donegan
And I don't care what the tribe thinks. Most of them do silly things. And if you want normal results, do the same as everyone else and you'll just have bad finances and be in debt. So I kind of realized early, you have to do different things if you want different results. And I am willing to be judged for doing things differently because I unhappy. Whereas Katie was like, we have to be safe. Don't tell people that you're doing things differently.
- [18:21]
Farnoosh Torabi
Yeah. You know, you mentioned you made the decision to not have a family financially. Didn't work on the spreadsheet, but I think also what it's afforded you is the ability to have the. To have more mobility and not that like having a family, having kids means you have to stay in one zip code for the rest of your life. But you have your. You have yourselves to consider exclusively and not others. And so I know families that move because they have to, because they're closer to healthcare that's important for their children, or school systems that are important for their children. Or frankly, they have grandparents they want to be around. So because they can't raise their families easily on their own and they realize the importance of being close to family. So you came up with this 1 million number and using the 4% rule, $40,000 a year. But you were also just 40 and 35 when you decided to retire. So how did that math compute? Knowing that you are, as you say, like, dedicated to health and wellness, you're going to live long, leaves, God willing. How are you going to make that stretch?
- [19:22]
Katie Donegan
Well, it's interesting you say stretch because that's the general assumption of everyone, is that you retire earlier, it has to stretch further. What we've actually found is that retiring earlier means you have more time for your money to work with you. So our net worth has doubled in the five years since we've had, which is crazy. So we're now worth 2 million and we have 80,000, and this is pounds to live off. And that has given us a fantastic lifestyle. And one thing I would like to add just on the kids bit is lots of people write off everything we say because we don't have kids. But I just wanted to say to your audience, mathematics doesn't care whether you have kids or not. Math is maths. And all of financial independence and investing is about the maths, the returns and the period of investing.
- [20:08]
Hannah Cole
And we kind of say it tongue in cheek when we say, you know, the kids didn't fit into the spreadsheet. But it was also, I think, what you touched on Farnish as well, saying it didn't really fit to our vision of how we wanted to live our lives. And when we started becoming more intentional with how we were spending our money and how we wanted to live, the kind of natural progression of that is like, oh, do we want to follow the standard path as well in terms of having a family? So it just made us start to question everything.
- [20:35]
Farnoosh Torabi
I loved Katie and Ellen's episode so much, I actually aired it twice in 2024. But if you're catching it for the first time here, you can go back and listen to it. We have the link in our show notes and. And what I love most about their story is that they prove that early retirement doesn't have to be about deprivation. It's about intentional living and a commitment to flexibility. And if retiring at 40 isn't your goal, I think their advice on calculating your enough number can apply to all of us who are looking to just plan smarter. Coming up after the break, what is it like to live exclusively on your Social Security paychecks? We had a guest this year from the Wall Street Journal who did a deep dive, interviewing multiple retirees across America who are doing just that. We'll hear from her and her insights in just a moment. Last Christmas I gifted my mother this gorgeous cashmere sweater in a beautiful burgundy and she still talks about it. It's so nice when you can get someone a gift they wouldn't necessarily get for themselves. That little bit of luxury that they don't know they're missing. And can you guess where that sweater was from? For quality gifts at an affordable price, my go to is Quinn's Quince lets you treat your loved ones and yourself to everyday luxury at an affordable price. Whatever you're looking for, all Quince Items are priced 50 to 80% less than similar brands. How do they do that? By partnering directly with top factories and cutting out the cost of the middleman which passes the savings on to you. Quinn's is on the nice list. They only work with factories that use safe, ethical and responsible manufacturing practices and they use premium fabrics and finishes for that luxury feel in every piece. Gift Luxury this holiday season without the luxury price Tag go to quince.com SewMoney for 365 day returns plus free shipping on your order. That's Q-U-I-N-C-E.com SewMoney to get free shipping and 365 day returns. Quince.com SewMoney it's the NYX best of 2024 sale going on now at nyx.com don't miss incredible deals on life changing leak proof underwear, unbelievable everyday bras and more from the number one leak proof brand in North Americ America. Save big like 30% off bras, 40% off leak proof, 50% off tops and bottoms, 60% off swim@nyx.com that's knix.com Millions of women have made the switch to NYX's revolutionary period underwear and there's never been a better time for you to try them. During the Best of 2024 sale, save up to 40% on Super Comfy machine, washable and stylish leak proof undies. Plus shop other year end clearance deals like 30% off Brasil, 50% off tops and bottoms, 60% off swim and more. Stock up on your Knicks favorites or try something new during the Knicks Best of 2024 sale. But hurry, these deals are only good while supplies last. That's knix.com hurry the sale ends soon and sizes will sell out. Go to knicks.com that's knix.com Ryan Reynolds here from Int Mobile. With the price of just about everything going up during inflation, we thought we'd bring our prices down. So to help us, we brought in a reverse auctioneer, which is apparently a thing Mint Mobile Unlimited Premium Wireless Everybody to get 3030 get 30 better get 202020 better get 2020 better get 151515 15. Just 15 bucks a month.
- [23:52]
Katie Donegan
Sold.
- [23:52]
Farnoosh Torabi
Give it a try@mintmobile.com Switch $45 upfront payment equivalent to $15 per month New customers on first three month plan only Taxes and fees extra speeds lower above 40 gigabytes in detail we all have dreams. Dream home renovations, dream vacations or sending our kids to their dream colleges. But finding straightforward ways to turn those dreams into realistic goals, that's where things get tricky. Merrill understands that. That's why with a dedicated Merrill advisor, you get a personalized plan and a clear path forward. And having the bull at your back helps your whole financial life move with you. So when your plans change, Merrill is with you every step of the way. Go to ML.combullish to learn more. Merrill, a Bank of America company what would you like the power to do Investing involves risk Merrill Lynch, Pierce, Fenner and Smith Incorporated Registered Broker Dealer Registered Investment Advisor Member SIPC now, on the other end of the retirement spectrum, what is it like to retire not with millions, but mainly your Social Security check to rely on Wall Street Journal reporter Ann Tergeson stopped by SO MONEY this year to share her findings on this lesser explored reality. Ann's article profiled Americans who had saved little to nothing for retirement, but are navigating this stage of life with resilience, creativity and sometimes hard learned lessons. Ann's insights hit close to home for millions of Americans. Did you know that one in seven Social Security recipients ages 65 or older rely on their benefits for nearly all their income? That's according to an AARP analysis. Social Security replaces roughly 40% of a retiree's pre retirement income and the average monthly check is $1,900. Imagine stretching that for housing, food, healthcare and more. Now here's Ann, our Wall Street Journal reporter, guest sharing the story of one woman she interviewed. Kathy wrote, She's 73 years old. She worked as a disability advocate and now creatively manages her limited budget on Social Security. Well, so you profiled with Veronica several people, including Kathy rote, who is 73 and living off of her paycheck of 1,040 per month. Kathy was an advocate for people with disabilities her entire adult life. She's a retired social worker. If you had to sort of summarize some of the themes along the lines of the strategies that these folks were implementing, are implementing because to be honest, that's what I walked away really appreciating about these profiles and is just how creative these people have to be to afford, not just the basics, because some of them do have active social lives. What were some of the takeaways you found and how they were going about designing their lives in this retirement where they're mainly living off of Social Security?
- [26:52]
Ann Tergeson
Sure. So I'd love to talk about Kathy. She's one of the two people who I interviewed. She's just a wonderful person to talk to, a very interesting life that she's had, which is the case for most of the people who we end up profiling in this series. You just kind of like, you realize how everybody's had like a very interesting life or, you know, it's just been fascinating to talk to people. So Kathy really, as you mentioned, she's been an advocate for people with disabilities her adult life. She worked for years for a nonprofit in San Francisco area that was at the sort of of the forefront of helping people with disabilities live independently. And Kathy was in charge of their housing program. So she's also a social worker. So she has a lot of knowledge of the world of how people can get kind of hooked up with benefits that might help them. And she herself has done that to a decent extent. I mean, for example, she actually owns her house thanks to an inheritance she got years ago. But before inheriting that property, she was able to qualify for Section 8 housing, which is a federal program that subsidizes housing. She also has been able to qualify for federal programs that help her with her Medicare costs, her prescription drug costs, and those are the ones that directly come to mind. But she was just sort of a font of knowledge of all these different programs that people, lower income seniors can qualify for. And there's a tool out there called elder care locator, and there's a network of, I think they're called Area Agencies on Aging that can help people kind of hook up with local programs. I actually spoke to this great nonprofit up in Maine that routinely helps low income seniors up there. And I think actually people of all ages get help with their utility bills, which during the winter up there, they're going to be. Your utility bills are going to be really high. So that was one strategy that I felt like kind of needed to be highlighted. And I was really happy that Kathy was willing to talk to us because she was just sort of a master at navigating those things.
- [29:34]
Farnoosh Torabi
And that's a wrap for our year end review looking at smart retirement strategies shared on so money in 2024. Whether you're a small business owner, whether you're dreaming of early retirement or just trying to make the most of your savings, remember, small, consistent actions can lead to a secure and fulfilling retirement. Special thanks to my guests Jean Smart, Katie and Alan Donegan, Hannah Cole and Ann Tergeson for their wisdom and actionable advice. We've got the full episodes in our show Notes. You can also go to somoneypodcast.com for these episodes and much more. I'll see you back here on Wednesday when I'll be sharing more of the best of 2024. Specifically, the best advice for raising money. Savvy kids, I hope your day is so money.
- [30:34]
Alan Donegan
Hi, this is Jonathan Fields, host of the Good Life Project, where each week I talk to listeners about investing in their future by increasing their own vitality. But when it comes to those financial goals, whether it be saving for a home renovation, growing your child's college fund, or travel, life can make it difficult to stay the course. By working with eight dedicated Merrill Advisor, you get a personalized plan and a clear path forward. Having the bull at your back helps your whole financial life move with you. So when your plans change, Merrill's with you every step of the way. Go to ML.combullish to learn more. Merrill, a Bank of America company what would you like the Power to do Investing Involves Risk Merrill Lynch, Pierce, Fenner and Smith Incorporated Registered Broker Dealer Registered Investment Advisor Member S I P C.
- [31:15]
Farnoosh Torabi
This episode is brought to you by Progressive Insurance. Fiscally Responsible Financial Geniuses. Monetary Magicians. These are things people say about drivers who switch their car insurance to Progressive and save hundreds. Visit progressive.com to see if you could save Progressive Casualty Insurance Company and affiliates. Potential savings will vary. Not available in all states or situations.