[UPBEAT MUSIC] EMILY BIGHAM: Hi, and welcome to the podcast "Making Cents," brought to you by Navy Federal Credit Union. I'm your host, Emily Bigham. And each week I'll be taking your questions to the experts to help you make sense of your money. Pun intended.
For people who have just tuned in, I'm speaking with Kevin Driscoll. He's the Vice President of Advisory Services at Navy Federal and Navy Federal Financial Group, actually, NFFG, for short. We're talking about how to plan for retirement during a pandemic. You know, Kevin, to your point when you asked me, what is the question that you're asking?
I really don't know what the questions are to ask. Because it may seem obvious. But why are Americans more worried about retirement now than previously in years past?
KEVIN DRISCOLL: I don't believe that Americans are more worried today about retirement than other points. From a historical perspective, I think that the environment that we're in with the pandemic is different than it's ever been.
In our lifetime we haven't experienced a pandemic. But wow, there's other things that we've experienced, right? We've experienced the Great Recession.
We've experienced internet dotcom bubble. Those were times that many of us were really nervous about retirement. Just throwing another thing another thing in there makes it just something to be nervous about.
EMILY BIGHAM: There was a poll that came out recently that said that nearly three in five American adults are more concerned now than they were last year. I think that the obvious answer is probably the pandemic and things of that nature. But at the same time, I think that people have been forced to leave the workforce. They're not sure if they're going to be able to enter back into the workforce.
Now, I know that that's changed a little bit in the past couple of weeks. What is your take on what's happening right now? And are there any changes about retirement that members can be thinking about now?
KEVIN DRISCOLL: I think the biggest thing for members to think about is really that retirement period that we all will enter some point in our lives. Retirement really isn't a point in time, right?
EMILY BIGHAM: Right.
KEVIN DRISCOLL: I mean, decide to exit from the workforce either prematurely or as planned. But whether you enter or leave the workforce prematurely, as planned, you're going to be out of that workforce for 20, 30, 40 years. So your retirement planning can't be based on a single event of a year or two years. Right? Because it's got to last for 30 or 40 years.
Just like we build our wealth, we're building wealth, we didn't acquire wealth, for most of us. I'm building wealth a little bit at a time. I think that's the same way that we have to approach retirement.
EMILY BIGHAM: Yeah, I think that's my overall issue with the whole plan for retirement. Because the word plan and then retirement, those words don't really mix. How can you plan for retirement once you're forced to retire?
It's like, at that point, is it too late? Perhaps that's why people are so stressed out about it. Is the question of oh my gosh, the panic mode's set in. And is it too late? And my question to you would be when is too late or when is too early?
KEVIN DRISCOLL: It's never too late and it's never too early. Planning is essentially giving yourself options. The way that you plan, whether it's in your personal finance, your retirement life, you plan for the worst but expect the best.
You have to have a positive attitude of what's around the corner. But you also have to plan for the unexpected. You may not have anticipated the effect of the pandemic on your time frame of retirement. It might have forced you to retire early.
But you're also entering into a phase of retirement that's going to last 20 or 30 years. So you have to plan for the next unexpected. You can't go into it thinking, oh, I didn't plan so I'm out of options.
EMILY BIGHAM: What if you have already been planning and you've set yourself up with this great retirement plan. What are indicators that maybe you should make a change in your retirement plan? Whether that is to pull back, to add more money, let it go?
KEVIN DRISCOLL: Most of the answer to that can only be answered by that individual investor. The individual investor, I think, has to be able to sleep at night. That's the key to retirement, is the ability to sleep at night.
EMILY BIGHAM: It's the key to life.
KEVIN DRISCOLL: The key to life, exactly, Emily.
If you can't sleep in late at night because of investment decisions you've made, you need to change them. You need to change them. Our health is dependent upon many factors that we don't control. So when we're in fear of what's around the corner, from a pandemic perspective, from a financial perspective, I can't sleep, insomnia, whatever the cases may be, it's time to make a change.
EMILY BIGHAM: It's time to call Navy Federal. Right?
KEVIN DRISCOLL: That's correct.
EMILY BIGHAM: That'll be the retirement and your stress.
KEVIN DRISCOLL: Right. That's where having somebody as a life coach, a financial planner or a financial advisor to bounce ideas off of, I think that's the key. This is what I'm afraid of. This is what keeps me up at night.
EMILY BIGHAM: Right.
KEVIN DRISCOLL: Then you can have that conversation. So again, back to that building wealth philosophy, I think one of the things that we should not do when we enter a life event like a pandemic, is to make rash decisions that are either an all-or-nothing decision.
I think that we can make decisions that are a little at a time. So if you're nervous and you want to get out of your investments, that's fine. Get out of them the way you got into them, a little bit at a time. So if you want to get out of 25% of your more risky investments, that's perfectly appropriate. It's going to help you sleep at night.
But if you get out of 100% of your investments at the wrong time, it's almost like buyer's remorse. When the market rebounds, you have the V-shaped recovery, W-shaped recovery. Whatever that may be, you're going to be kicking yourself saying shoot, I think I got out the wrong time.
EMILY BIGHAM: I think it's probably also good to think about your strategy behind it. A plan is one thing. Then your strategy's another thing.
It's like, where do you want to be at the end of this? That sounds really scary when you think about retirement. I just mean, you know, how do you want to feel about it?
I think probably being agile and reviewing it every once in a while. I guess, what are some indicators that people could research or read about? Or even talk to NFFG about? Indicators that it's time to reconsider the strategy?
KEVIN DRISCOLL: I think just the fact that the clock turned to 2021 is a reason to review your strategy.
EMILY BIGHAM: New year, new you?
KEVIN DRISCOLL: Yeah. Every time a outside influence pushes your investments greater than 10% or there's a 10% loss in your investment, waiting for those triggers may be the wrong move. So having a periodic check on yourself and your investments, and working with your financial advisor, I think that's the key, is not to wait for events. But plan ahead of time.
EMILY BIGHAM: I want to switch gears a little bit and go into the actual different products. Because we've spoken about investments. There are retirement products and retirement accounts. So can you talk a little bit about some of the most popular products?
KEVIN DRISCOLL: I think there are different products for different people. But there is one particular type of an account that benefits many, many, many, many of us. And that's the Roth IRA. The Roth IRA, to me, is the most flexible account that there is.
The Roth IRA allows you to react if there's a pandemic. Just because a--
EMILY BIGHAM: In what way? oh, sorry. Didn't mean to cut you off.
KEVIN DRISCOLL: That's OK.
EMILY BIGHAM: I'm just very curious myself too. I'm like, in what way? Tell me all the things.
KEVIN DRISCOLL: Some of the IRS provisions about a Roth IRA allows you to withdraw your contributions first and leave the gains in the account. Hypothetically, somebody that invests $5,000 a year for five years into a Roth IRA, their basis on that account, or what they put in is $25,000 after five years. And let's say the account's worth $30,000. They're able to take-- if they have an emergency, they can take $10,000 out of that account and it's not a taxable event.
EMILY BIGHAM: What's the bottom line? The Roth IRA, what is the overall benefit? Am I getting more money in the end? Am I getting less money taxed?
KEVIN DRISCOLL: That's a great question. The biggest benefit to the IRA, to the Roth IRA, is flexibility and future tax-free money after age 59 and 1/2.
EMILY BIGHAM: So meaning when you take the money out of the account after the age of 59, you get taxed less?
KEVIN DRISCOLL: Zero taxes. There will be zero income taxes.
EMILY BIGHAM: Oh, OK.
KEVIN DRISCOLL: So 0 is less than 10. 0 is less than 24. 0 is less than--
EMILY BIGHAM: I mean, that's big.
KEVIN DRISCOLL: That's a big deal.
EMILY BIGHAM: I need to get into this.
KEVIN DRISCOLL: Right. So the disadvantage is, when you put the money into the Roth IRA, you can't deduct it from your taxes. You definitely need to put it on your income taxes and let the IRS know you did it. But it doesn't help you that year, 2020, I put $5,000 into a Roth IRA is not going to reduce your taxable income today. But when you retire you'll owe $0 on not only the contribution you put into it, but no income tax on the gains either.
EMILY BIGHAM: But if you're not yet 59 and you retire, you're excluded. Right? Is there anyone that's excluded from the Roth IRA? Or can anyone take advantage of the product?
KEVIN DRISCOLL: No, there are exclusions based on income levels. Once you get above a certain income level you cannot contribute to a Roth IRA. But there are provisions.
There are great opportunities within the tax codes to convert traditional IRA dollars into Roth IRA dollars. And you have to be careful of that. Because there's some immediate tax consequences.
So you really need to talk to a tax professional if you're going to consider that. But there are ways for many of us to get into Roth IRAs and have the flexibility and then tax-free money in retirement. It's pretty cool.
EMILY BIGHAM: Yeah. I had another question about it. But then I answered my own question with why don't you just go talk to someone at Navy Federal about it, about your current situation? Because I feel like that's probably what you're going to say to my next question. But after the Roth IRA, is there another most popular product or another product that you'd recommend?
KEVIN DRISCOLL: Well, I think today, the best recommendation for many of our members is a balanced portfolio. If you look at the interest rate environment today, it's a very low interest rate environment. So it doesn't benefit savers very much. People that are saving money, the interest rate environment on a Certificate of Deposit is very, very low. Less than 1%, for the most part.
But if you're taking out a loan or a mortgage, this is great. It's a great time to borrow money. But if you're saving it, not so much. So having a little bit of risk in there is an opportunity for you potentially to beat inflation and have your money maintain the buying power that we need it to make as we go into retirement.
EMILY BIGHAM: When you say balanced portfolio what do you mean exactly? Just different products? And when you say investments do you mean stocks and homes? Do you just mean retirement products?
KEVIN DRISCOLL: I'm going to say yes to all that, Emily.
EMILY BIGHAM: I'm really trying to extract it. Because it's a lot. There's a lot to learn there.
KEVIN DRISCOLL: Sure.
EMILY BIGHAM: Yeah. So balanced portfolio is all of the things.
KEVIN DRISCOLL: Yeah. Most of us have heard the phrase don't put all your eggs in one basket. That's very true. Some of us learned a hard lesson in the real estate bubble.
Because housing prices couldn't go down. So putting more money than should be allocated into the real estate market, for some, may have been a mistake.
But if you have some in stock, some in bonds, some in cash, some in Certificates of Deposit, some in real estate, you're really balancing out. So this year, maybe stocks don't do well and real estate does well. Then the following year something else does well and something else doesn't do well. Having the balance of all those investments in your portfolio of assets is the key to future success.
EMILY BIGHAM: Some of those things are a little bit pricey. So for someone who's just starting out or even doesn't have a lot of income, how are you supposed to have a balanced portfolio if you can't necessarily jump into all those places? Is there another way to have a balanced portfolio?
Or what should you start with? What's safe? Because those are a lot of big-ticket items. I'm just curious as to how many people can really take advantage of all those.
KEVIN DRISCOLL: Yeah, for some of them you're right. They're difficult to get into. But in today's digital world, there's opportunities. Like at NFFG, we have a digital investor.
Somebody who's new to investing, or even somebody that's experienced in investing, you can buy what we call fractional shares of any investment. So if you had $10 and you want to invest in Apple you can buy $10 worth of Apple on our digital investor product.
EMILY BIGHAM: I'm writing that down right now. I'm getting in.
I'm just kidding.
KEVIN DRISCOLL: Google, Facebook, all those technologies, it's an opportunity for many investors to get started and many investors to learn about investing.
EMILY BIGHAM: Where do you go to find about that, the website?
KEVIN DRISCOLL: Yeah.
EMILY BIGHAM: Is there an app or a website?
KEVIN DRISCOLL: Exactly. On our website. NFFG's website. There's a link to Digital Investor. It really helps out those that either they know what they're doing and it's a great tool for do-it-yourself investor, but it's also a great tool for that person who's a little bit apprehensive about jumping in.
So you can do $10 a month. You can do $20 a month. You can buy fractional pieces and parts to companies that you're familiar with. A lot of us, that's the comfort level in investing. I know that there's a Home Depot around the corner from my house. So can I buy $10 worth of Home Depot? Absolutely.
So if you have a comfort level and you believe in where the companies are headed and where you believe they're going, where they've been historically, you can invest in those for as little as $5, $10.
EMILY BIGHAM: So you can kind of play with it a little bit, use your intuition, and put some money in maybe your favorite products or favorite clothing or technology, and just see what happens. I find it really interesting that no matter what you read, it's almost like, think about the people that you're around. And pay attention to what's going on and where the world is heading.
You can look up news articles for that. But sometimes you just never know. But at the same time, it's not too much of a concern if you're just putting in $10 at a time.
If you look at Apple stock or Amazon stock or Tesla stock, it's just like, oh my gosh, this is so intimidating. And I can buy half a share and not eat for a week. That's a lot for people. That's pretty cool that you can have almost a balanced portfolio within the Digital Investor.
KEVIN DRISCOLL: What's really interesting about that, Emily, is that with the power of growth and the power of compounding, that $10 turns into $20. That turns into $40. It turns into $80.
The more times you have an opportunity for your money to double, the more successful you'll be in retirement and anything else. For those investors who are just getting started, don't stop putting that $10 in.
Don't stop. It's a good habit, right? So investing periodically is really going to benefit that person by continuing to put in, on a periodic basis, that $10 or $20, whatever they're trying to do.
EMILY BIGHAM: We have a lot of interest in this Digital Investor here in the studio, including myself, but which it's OK. We're getting questions from the audience.
KEVIN DRISCOLL: Anthony's got a big smile on his face though. I can't see it behind his mask, he's also interested.
EMILY BIGHAM: Oh yeah, I think we've hit the mark here. It's a bunch of old millennials here who are like, ooh, we can do it now. We didn't hit the Apple stock because we were like, I don't know, teenagers. But now we can get in. Anyway, back to my question, actually it's not my question, but from the audience, how would you set that up?
KEVIN DRISCOLL: Yes, you have to be a Navy Federal member to have a Digital Investor account. Because actually, once you open up the account, you're able to access it through Navy Federal, your digital app, your phone. Once you link in to your Navy Federal account, you can then go over to your Digital Investor account. Yes, you have to be a Navy Federal member. But--
EMILY BIGHAM: What happens if-- excuse me. So can you invest in stock through different apps? Say Robinhood?
Or just directly through I'm not really quite sure where, and then also invest through this app? Can you have multiple accounts and multiple apps, I guess? I think people at home, in the past year I heard, are getting a little interested in these types of things. It's interesting to know that even if you do have stock somewhere you can still use this product at Navy Federal.
KEVIN DRISCOLL: Having more than less is the better answer to that. As we started the conversation talking about retirement, we moved and morphed a little bit into Digital Investor. I think as we get closer to retirement, one of the detriments to creating a successful plan is having too many of those accounts that you talked about.
So if you have Robinhood and you have Digital Investor and you have all the other ones, trying to put it all together to create a comprehensive plan for retirement makes it more difficult. That's where a financial advisor really comes in. Because they're able to see all that stuff. They're able to help you bring it all together, to create and modify that financial plan that'll help you into retirement.
EMILY BIGHAM: Hmm, all right. That's very interesting. Love that one. What about for people who have been, say, on the other side of the spectrum as far as retirement planning goes?
You're approaching your late 50s. You're starting to think about actual retirement. You've had your plan set up for a while.
Are there any things that you should be thinking about? Any milestones to wait for? The whole taxes thing is very confusing to me.
But I'll leave that one to the experts. But yeah, what are some of the things that late-- I don't even know how to say, late retirers? --people entering retirement should be thinking about?
KEVIN DRISCOLL: You mentioned taxes. That's very daunting and something that makes us all a little bit nervous. But really, the most efficient retirement is a tax-efficient retirement.
Working with a tax professional as well as financial advisor, learning which account you're going to take money out of first, for how long. So that you're not going into retirement taking money out of your 401(k) that makes a taxable event for you. If that throws you into a tax bracket, you end up paying more taxes then you should have, that that's something to watch out for.
Going into retirement, the thing that you mentioned as being a little nerve racking, is something that you really have to pay attention to. So back when the 401(k) was first designed, everybody jumped in. What that's caused us to have is the majority of our assets are in tax-deferred accounts.
As we take money out of those accounts for retirement, it's giving money, part of that money, back to the IRS for taxes we didn't pay as we were accumulating that wealth. Well, the IRS wants the money as you go into retirement. So making sure you're taking money out of the right account at the right time, it's a little more difficult than just I need $100, I need $1,000. You got to make sure it's out of the right account, the right tax, really.
EMILY BIGHAM: In the grand scheme of things, if you're thinking long term about retirement, but then also paying attention to what's happening on a daily basis about the economy, with the pandemic, I'm sure that once things settle down a little bit and people are a little bit more comfortable and more certain about the way that the world is going-- lost my train of thought there. But I guess there's always going to be something, right? So how do you plan for those always-something moments and then also know that you're on a steady path to success?
KEVIN DRISCOLL: I think planning for those unexpected moments should be part of every plan. You think of football. Football analogy, right? There's the RPO run with the pass option.
They're thinking I'm going to run this. This play is going to be a run. But the quarterback also has the option to pass it if they see an opening for a pass.
That's what you have to go into your retirement planning, is that I'm going to plan that every year is going to be positive. But you've got to have an option. What's that fallback option if there is negative influences in the market?
EMILY BIGHAM: What's the riskiest thing you can do?
KEVIN DRISCOLL: I'll go back to my original answer on that. That's making rash decisions.
EMILY BIGHAM: I'm not saying it's "don't do this." I'm just saying.
KEVIN DRISCOLL: The riskiest thing is to--
EMILY BIGHAM: Not do anything?
KEVIN DRISCOLL: Blow up your plan and say I'm going to--
EMILY BIGHAM: Not have a plan?
KEVIN DRISCOLL: Yeah. I'm going to jump out of all my investments. I'm going to sell my house at the peak. I'm going to jump out of my retirement investments. I'm just going to put it all in cash. Cash really isn't going to help you outpace inflation.
So as things get more expensive, it's something you're going to need more cash than less, the longer you live.
EMILY BIGHAM: Right. Let's say you don't have any of those things what is the riskiest thing you can do?
KEVIN DRISCOLL: Not have a plan.
EMILY BIGHAM: Because if you have those things, I imagine you've planned. Right?
KEVIN DRISCOLL: I don't necessarily agree with you.
EMILY BIGHAM: There's no bad first step, I guess is what you're saying?
KEVIN DRISCOLL: Exactly.
EMILY BIGHAM: Don't be afraid to just enter into it?
KEVIN DRISCOLL: Absolutely. You know, it's starting to exercise, just start. Starting to invest? Just start.
EMILY BIGHAM: Right, don't wait.
KEVIN DRISCOLL: Once you've made that initial investment, it's very easy to then work with a professional that says, great job. You got things started. Now, let's make some tweaks and adjustments and create what you have as a base and make it into a more formalized plan. Because what we plan as a individual pre-retiree, because we're all pre-retirees until we enter that stage, so what we plan as a pre-retiree can be tweaked and adjusted. But just get started.
EMILY BIGHAM: Yeah. There's a podcast that I think is really funny called "Diet Starts Tomorrow." It cracks me up every time. Because they don't even really talk about dieting.
It's more just like, I don't know if it's an American way or just a way of thinking of oh, we'll start it tomorrow. It's like it, mm, could be another pandemic tomorrow. I hate to say that. I shouldn't joke about it.
But you're right. And even though it is good to go to a professional and an expert to really hone out your plan, it doesn't mean that you have to wait for anything. So let's say that today I want to start planning for retirement.
I don't have time to talk to anyone for another two weeks. What can I do today? And what should I do tomorrow?
KEVIN DRISCOLL: Emily, it really depends upon what you're trying to accomplish. Some people really want to, before they go talk to a professional, they want to learn. They want to feel confident when they go into that first meeting.
There are so many digital tools available today, to learn about retirement planning. So all of them are good. All of the online educational tools to help educate yourself about whatever you're trying to accomplish.
In this case, we're talking about retirement. So jump in. Start learning. Start learning what some of the terminology is, so you feel much more confident and comfortable in those discussions when you're talking with a financial advisor.
ANNOUNCER: Navy Federal Credit Union is federally insured by the National Credit Union Administration. This podcast is intended to provide general information and shouldn't be considered legal, tax, or financial advice. It's always a good idea to consult a tax or financial professional for specific information on how certain laws may apply to your individual financial situation.
References to and participation with the military community does not constitute organizational endorsement. Navy Federal is an Equal Housing Lender. Navy Federal Credit Union, our members are the mission.