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EMILY BIGHAM: Welcome back to MakingCents, the podcast brought to you by Navy Federal Credit Union. I'm Emily Bigham. Thank you again for tuning in, and remember that you can subscribe to this podcast wherever you get your podcasts.
This week, we're going to be talking about mortgages, specifically VA loans. Service members and veterans often hear about VA loans, but they can be pretty difficult to grasp. And so today, we're going to try to simplify those for you so you can understand and also take advantage of their true value.
So today, we have an expert on VA loans, Kevin Parker. Kevin is the VP of field mortgage here and Navy Federal, which means that he manages the team of loan officers. They're member-facing, they're actually on the ground talking to members and, I guess, get a lot of these hard questions. Welcome, Kevin. Thanks for being here.
KEVIN PARKER: Thanks, good to be here.
EMILY BIGHAM: So I have a little bit of a question to throw you off today, just to start the day. Now that we've been working from home for a little over seven months, how was your morning routine changed?
KEVIN PARKER: Much different. So, I do not have the hour and 50 minute commute that I used to have. So that time, I found that I was spending a lot more time laying in bed.
I also have two little girls, a 9 and 12-year-old. So they're in school. So I'm finding myself to be a breakfast chef, and--
EMILY BIGHAM: Nice.
KEVIN PARKER: --trying to get them ready for school as well too. So it's definite changed a bit, but, you know, we've all been able to basically manage through and still add value. Whether it's being a part time father or a professional or working in my pajamas at home.
EMILY BIGHAM: Nice. Well, next time I'll have to have you bring me breakfast.
KEVIN PARKER: Ah, sounds good.
EMILY BIGHAM: [LAUGHS]
KEVIN PARKER: Sounds good.
EMILY BIGHAM: So VA loans. I hear a lot about VA loans. In fact, my mother-- shout out to Patty Bigham-- she texted me the other day and she was asking me questions about VA loans. And I was like, first of all, mom, that's not my area of expertise. I'm going to kick you over to the experts in Kevin's department. But, you know, it led me to realize just how complicated they can be. Because my parents have had a few mortgages in their lifetime, and to still be asking questions about VA loans and their benefits just made me realize how confusing they are. So why do you think that there's this perception?
KEVIN PARKER: Yeah, it's a great question. And I think that's a great topic because we're always out there trying to dispel the myth of VA loans and them being confusing or harder and the perception. The reason the perception is out there is because the purpose of a VA loan is to help members get into a property that's viable, a property that's going to hold value. But also, a product that's going to be beneficial to their specific needs.
And by specific needs, I mean more times than not, a lot of our military members maybe can take advantage of not putting down as much money as what a typical non-service member. And by that, we mean, there are a lot more low down payment options when getting a VA loan. So that right there is an instant benefit, meaning more cash. That's cash that you can use towards buying furniture or fixing up the property, things of that sort.
But the overarching point of VA loan is, that loan is there to protect service members and make sure that they're getting into a financial product that can be beneficial to them, specifically.
EMILY BIGHAM: So when you talk about less of a down payment, you know, there are a lot of mortgages out there that don't require a down payment or a large payment. And so if you had to boil it down to the best benefit of a VA loan, what would that be?
KEVIN PARKER: The interest rate.
EMILY BIGHAM: The interest rate. OK.
KEVIN PARKER: Right.
EMILY BIGHAM: Even in a low rate environment like we're in today?
KEVIN PARKER: Even at the low rate. So I should say, lower interest rate.
EMILY BIGHAM: OK.
KEVIN PARKER: Lower than typically your conventional loan, which in layman's terms means, less money, meaning your monthly mortgage payment is going to be a little bit lower than it typically would for other products. So that's a huge benefit.
Two, right behind it, as I just mentioned, the low down payment, meaning that's a lot less cash that you have to put down. And let's kind of touch on that for a moment, just in terms of just the cash aspect of it. When we provide loans to consumers, the more equity you have in the home, the less risk it is for the institution.
EMILY BIGHAM: The more equity.
KEVIN PARKER: Right. And by that I mean, let's say the home was worth $100,000. And you do a loan for $80,000. So the difference of $80 to the $100, that's the equity in the home, meaning cash, liquid in the home. Worst case scenario, that extra $20,000 is there as a cushion in case the lender has to get their money back. So that's the whole thing about why is it such a big deal putting down cash versus not? And for a VA loan, the VA comes in and helps us, basically securitize our loans. Which means that, if anything goes wrong, the VA is going to be there to back up that loan. That's really the benefit of where the Veterans Administration comes into place.
EMILY BIGHAM: And so that's why the lender is able to give a lower interest rate?
KEVIN PARKER: Correct.
EMILY BIGHAM: Got it. OK.
KEVIN PARKER: Because the VA is backing half that loan for us.
EMILY BIGHAM: So is it more difficult to get a VA loan then because you're going through the lender and then also the VA?
KEVIN PARKER: So ironically, it's not. So you would think so. That's a great question. But that's where the benefit of the Veterans Administration comes into place-- that, not only will we secure half that loan for you, but they're also going to give you a better interest rate. So you're kind of get a double benefit of being able to not put down as much money, keep more cash, and have a lower interest rate, keep even more cash.
EMILY BIGHAM: Sounds good to me.
KEVIN PARKER: Yeah.
EMILY BIGHAM: So then, I guess my question goes back to, then why is there such a perception that they're so difficult to understand? Is that where the eligibility question comes in or what's that perception?
KEVIN PARKER: Yeah, eligibility. And then also, one of the main purpose for the VA loan, once again, is to make sure that we are lending a house that's viable. And by viable, I mean, it's structurally sound, it's not a lemon, you're going to keep that property for a long term.
And so by that specifically, the VA has very specific requirements when they do appraisals, when they do home inspections. And so that's why you're going to get maybe some of the more-- what seemingly can be restrictions around VA loan is because sometimes the VA might require some additional inspections. Or not inspections, but some additional improvements done to the home based off the home inspection. That's where the perception comes from that it may be a little bit harder. But the key--
EMILY BIGHAM: Just because the--
KEVIN PARKER: --thing is--
EMILY BIGHAM: I'm sorry to interrupt.
KEVIN PARKER: No, no. No, no. Not at all. I'll say, but the key thing is working with the lender that's very familiar with the type of appraisals, type of home inspections. Because for us, like Navy Federal, we're specialists when it comes to VA. So we're very used to working with our members and working with the appraisers if anything needs to be done on a property. But more times than not, it's a common appraisal like any other conventional product.
EMILY BIGHAM: So how many times can you take advantage of the VA loan?
KEVIN PARKER: Great question. So the VA allows some flexibility in terms of what you call VA eligibility and we also call subsequent use, meaning you can use it multiple times. But it's really based upon your specific situation.
For example, some will want to get a VA loan for the purpose of an investment property or for a second home. Some would want to get a VA loan-- most want to get it for the purpose of a primary property. And so it really depends upon that person's unique needs, which is why they make you go through the Veterans Administration to actually find out what your eligibility is. And we help our members with that process early, before they even apply.
EMILY BIGHAM: So even if you're eligible for a VA loan, is there ever a right or a wrong time?
KEVIN PARKER: No, I wouldn't say they're the wrong time, because the VA is such a good product. I mean, we really believe in it and think it's a very, very beneficial product. So I wouldn't say there's a wrong time. More times than not, more veterans are going to use it for primary purpose. So that's your overwhelming, I would say, the purpose of getting a VA loan, for primary resident.
EMILY BIGHAM: What are some of the other options that you guys recommend if they're not going to take advantage of the VA loan?
KEVIN PARKER: Yeah, so--
Now fortunately, we're lucky. From the standpoint of, we are a portfolio lender, which means that we keep some of the loans that we issue on our books, meaning we don't sell them to Fannie Mae. And what I mean sell them, Fannie Mae buys loans to help securitize loans. Well, for Navy Federal, we keep some of our loans on books, which means that we have a bit more flexibility, which means that we can create products very specific for unique needs.
For example, we have a program called Military Choice. It's almost very close to what a VA loan is. The only difference is you're not using your VA eligibility. So if we have a member who does not want to use their eligibility for whatever reason, well, we have a different option of our Military Choice program in which the rates-- almost just as good, it's not quite the same. But it's almost just as good as a VA loan.
EMILY BIGHAM: So to me, that kind of makes sense. You know, you want to have options, especially because military members are moving quite often. And sometimes they don't know if they're going to relocate or if they're going to go overseas. Does going overseas or being here in the United States, does that change anything about the VA loans or eligibility?
KEVIN PARKER: No, because it's based off what the property is. So we lend in all 50 states. So regardless of where the member is, the reasons for their mortgage could change. But as long as it's in the 50 states, it doesn't matter where they are.
EMILY BIGHAM: And can you refinance a VA loan?
KEVIN PARKER: Absolutely. So that's was a great question. So there's a pro product called Interest Rate Reduction Loan, and that's a special program. Because every time you do financing, it cost money. All right? There is an appraisal fee, you have to do title, you have to do title work. And all those are different fees of cost associate with the loan. Well, with the Interest Rate Reduction Loan, those costs are reduced because you're not going to have to do an appraisal, in essence, we're saving money on the expense to do your loan. And it's a much faster process. And so we actually have a dedicated channel just to handle our Interest Rate Reduction Loan for our members.
EMILY BIGHAM: So I'm going to switch gears a little bit and kind of talk about what's going on right now. We're in a recession, but the environment's very different from that 2008 housing bubble recession. Have you seen any change in consumer, I guess, member behavior when it comes to home buying?
KEVIN PARKER: Yeah. So ironically, not as much as you would think. So right around March when COVID really hit, we did see a touch of a decline in terms of homes listed for sale. If you think about it, people didn't necessarily want to sell their-- list their home because they didn't want people maybe walking through and doing inspections. And on the other side as well, people buy homes-- they're a bit hesitant of going out there and shopping for new homes, et cetera.
But after March, we started to see home purchases kind of trend back up to normal levels. If you look today, even the same purchase trend is about the same that historically has been. So we haven't seen a huge shift in behavior. Our production from a Navy Federal perspective, still gonna be on target pre-COVID that what we thought. So no, I mean, honestly you haven't seen a big change.
EMILY BIGHAM: So I assume probably with the low interest rates, you guys are getting a lot of refinancing applications.
KEVIN PARKER: Absolutely.
EMILY BIGHAM: Yeah.
Well, that's good.
KEVIN PARKER: A huge number.
EMILY BIGHAM: That's smart, right? That's what you want members and consumers to do.
KEVIN PARKER: Absolutely.
EMILY BIGHAM: Is take advantage, when they can, of what's happening. And so tell me about your first home.
KEVIN PARKER: Great question. So my first home was actually right out of college. So I went to Hampton University down in Virginia in the Tidewater areas. So as you can imagine, it's a lot of military members in that particular area. And at 23 years old, a buddy of mine, we wanted to buy an investment property.
And ironically, the person buying that property was a veteran. And they actually did a VA loan on their side. So I got to experience a VA loan as a seller, in which talking about the appraisal and talking about the inspection on the seller perspective. And so that was my very first opportunity of basically buying a home as an investor and then selling it to a VA member.
EMILY BIGHAM: So, you know, from a seller perspective, I assume that's a lot different from being a buyer. What are maybe some, like, old tips that you can-- or I guess things to know about being a seller on the VA side that members should be aware of.
KEVIN PARKER: Yeah. I think that's a great question. I think one of them is understanding, maybe, what some of the red flags might be for the property type or the type of property or just inspections in general, improvement just in general. More times than not, if the home is viable, once again, structurally sound you're gonna be able to sell it regardless of what type of loan that you do.
But there is some in regards to painting and plumbing that, I think, maybe if you're selling it to a VA buyer, it might be helpful to know. But in more times than not, that's going to be on the realtor. The realtors, that's what they there for. We work very closely with our realtors. A lot of voters are very experienced and they're familiar with VA loans.
But one thing we do recommend for our members, our buyers in general is, you want to work with professionals who are familiar with that specialty. And by that I mean, I use the analogy of, when I want a steak, I'm going to go to a steakhouse.
Same thing for if I want seafood, I'm going to go to the restaurant that specializes in seafood.
EMILY BIGHAM: [LAUGHS]
KEVIN PARKER: Certain lenders specialize in VA loans versus others. I think we take a lot of pride, Navy Federal, working very closely with our military members and their families that we are a VA specialists. More than half the loans that we originate are VA loan. So we're very experienced and we're very comfortable in helping our buyers, helping our members. But also, working with realtors, and working with title companies, working with appraisers and working with homes inspectors.
EMILY BIGHAM: There's a lot that goes into the mix.
KEVIN PARKER: Yeah. It's its own ecosystem. And so that's something that we're very comfortable and confident in working through that process for our members.
EMILY BIGHAM: And your loan officers are across the country, right? I mean, I assume everywhere there's Navy Federal branch, that you probably have loan officers. And does that get a little bit complicated, especially in this current environment, do you see the different markets kind of acting differently or do you feel like across the board things are shifting and trending in the same direction?
KEVIN PARKER: That's a great question. Yes, we do see things typically trend differently, different parts of the country. Whether it's the inclement weather, whether it's the market, whether it's the market prices in that area.
For example, in our San Diego market, we tend to see home values--
EMILY BIGHAM: Patty Bigham, are you listening?
KEVIN PARKER: [LAUGHS] There you go. We tend to see home value is a lot higher in that market versus other parts of the country, whether it's southern Texas or parts of the Carolina's in which the bang that you can get for your buck is actually phenomenal. And so, the trends are a lot different for us, because we also have to go by state laws and all of our loan officers have National Mortgage Listing Registration, meaning they have to be certified to be able to talk mortgages to members. And that's something that we do manage and we take very seriously in making sure that our loan officers are very skilled at really helping our members.
And the great thing about offering mortgages, every mortgage is not for every person. And for us, it's about teaching our members and educating our members. This is a personal finance product. And for us, that's about financial literacy. It's about making sure our members understand because we know at Navy Federal, this is a relationship. And we want them to come back in five years or 15 years and we want to be able to help them for whatever need that they have. And so we take a lot of pride in making sure our loan officers are very comfortable in understanding each member is very specific need.
EMILY BIGHAM: Yeah, and so, if a member moves from market to market, do they stay with the same loan officer or is it typically, you know, you want to talk to the expert in the area?
KEVIN PARKER: So they can. So we actually to give them a choice. We try to let our members interact with us. However they want. So if they want to do it digitally, we have what we call a Home Squad System in which they can apply online. If they want to call on the telephone, if they want to walk into a branch. We want to let them interact how they want interact. And if they want to stay with a loan officer from a different part of country, they can.
A lot of times they might want to work with a loan officer or see a loan officer in person in that market. And we can do it as well too.
EMILY BIGHAM: I'm sure that's shifted a lot too, just given current situation. [LAUGHS]
KEVIN PARKER: Very true. Very true.
EMILY BIGHAM: I don't even want to get into that because I don't even-- that's just a lot.
KEVIN PARKER: Well, the good thing about loan officers too, our loan officers, they'll FaceTime.
EMILY BIGHAM: Oh.
KEVIN PARKER: They'll text members. However members want to interact.
EMILY BIGHAM: Digital?
KEVIN PARKER: Digital, yeah. So we try to make it easy, because we realize we have our loan officers who are part-time teachers and part-time cooks, just as we are. So we try to make sure that we give them the flexibility, and they're able to work with our members, based on what their needs are.
EMILY BIGHAM: That's great. So I have a question back on eligibility. You know, military spouses, would they be in the mix for being eligible? Or how would that happen? Do they have to be on a mortgage with their spouse who is active duty or a veteran? Or can you get into a little bit about eligibility?
KEVIN PARKER: Yeah, so there's two ways to answer that. One, the eligibility is based off the military member, not the spouse, so the military member does need to be on the loan. And certain states require that the spouse is actually on the application. For example, California is a state that if you apply, even in your own name, that military spouse has to be on a loan.
And so it's really state-specific, so that's why it goes back to-- we like having loan officers in different parts of the country, who understand those state-specific requirements, and we can help our members walk through whatever their needs are in their specific state.
EMILY BIGHAM: All right, so we're about to wrap it up here. And I think we've given-- I mean, you've given me, at least, a lot of great information. Do you have any last tips or tricks you'd like to give the audience about VA loans?
KEVIN PARKER: Sure. One, your mom better call us.
Two, once again, go onto our website, whether it's our website, or you have other websites like the VA. You have the CFPB website. There's a lot of information out there to just help people consume and understand.
We realize that buying a home, refinancing a home, is a really, really big, probably one of the most, important transactions, and so for us, we try to be teachers. And there are a lot of calculators on our website, a lot of great tools that members can take advantage of to make sure that they learn as much as possible about the VA loan.
So when they do find their home, we're going to try to make it as frictionless as possible, so that they can enjoy the concept of, what school are their kids going to go to, and the new furniture.
EMILY BIGHAM: There's so many other things to worry about, too, when you're in the military and you're moving from state to state. I mean, I grew up as a Navy brat and even moving overseas, you have to send half of everything you own six months before you get there. The anxiety I felt as an 8-year-old. I can't imagine how would parents feel.
So I think you cleared up a lot of the perceptions, and, to me, I think action relieves anxiety, so I would say just call. Whatever lender you're working with, just call and talk to them about your options. And a VA loan sounds like a great benefit that everyone should be taking advantage of.
So thank you, Kevin, again, for being on today's podcast. And, for the listeners, please feel free to call if you have any questions, and, of course, subscribe to the podcast wherever you get your podcasts. And thanks again for tuning into Making Cents.
NAVY FEDERAL CREDIT UNION REPRESENTATIVE: 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, or 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.
Episode 3: Understanding the Value of VA Loans
VA loans are a great perk for servicemembers to take advantage of when buying or refinancing homes. In this episode, Navy Federal's Vice President of Field Mortgage, Kevin Parker, makes it clear what to expect when getting a VA loan, including understanding funding fees and navigating eligibility confirmation.
- a discussion of VA loans, funding fees and obtaining a Certificate of Eligibility
- tips on what you should be doing to make the most of a VA loan
GUEST: Kevin Parker is Navy Federal's Vice President of Field Mortgage. A long-time mortgage professional, he has helped Navy Federal members become homeowners for the last 7 years.
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EMILY BIGHAM: Hi, and welcome to the podcast, MakingCents, 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.
Hi, and welcome back to my conversation with Kevin Driscoll, Vice President of Advisory Services at Navy Federal Financial Group. In part one, we discussed retirement planning. And now, we'll get into investing in today's world.
Job security is a big deal because you can't even think about an investment until you've had job security.
KEVIN DRISCOLL: Yeah, I think you're exactly right on that. Job security during a pandemic, job security during any of the internet bubbles, or any-- the Great Recession, it's always a concern. Your employment-- you have to feel comfortable in your employment.
As a business owner, that's a double-edged sword because you're also a business owner, and you're an employee of that business as well. So you may have established a retirement plan for both you and your employees. And you're going to have to make some decisions in some tough markets. Maybe you forego-- No, I--
EMILY BIGHAM: Sorry.
KEVIN DRISCOLL: It's OK. Maybe forego a contributing--
EMILY BIGHAM: No, this is an emotional topic for people, so I'm really trying to-- I know that we do have a lot of military members. But for people who don't, this is probably even more important. And putting your eggs all in one basket, we were talking about this earlier, do not rely on your job as your only source of income and your only thing that you have going. Make sure that you diversify.
And if you don't have money besides your job, what are some steps that members can do? And I know that is a tough question. It's very situational, and that's why I'm kind of encouraging it. Because that's when you probably do need to go seek help the most, is when you're in that sort of--
People who already have the investments, already have the house, already have the stocks, I'm not sure that they need a ton of help. They definitely need guidance, and they're taking big risks. But what about for people who-- they lost their job, and they don't have the balanced portfolio?
KEVIN DRISCOLL: One of the very first things people should start doing when they get their first job, get employed is have an emergency fund. And the bigger you can build an emergency fund, the more you're able to react to events like the pandemic. You know--
EMILY BIGHAM: The rainy day fund sort of thing? Or is that a little bit different?
KEVIN DRISCOLL: That's a little bit different. The rainy day fund may be something that is used by many people during the Christmas time, you know? It's, OK, I'm going to-- people feel like they can jump into the rainy day fund and pull money out of it. But if you name it the emergency fund, that's a little different story.
EMILY BIGHAM: Right, it's like the happy cash fund.
KEVIN DRISCOLL: That's right. So just the terminology of what you're calling these accounts can make a difference in what you're going to use it for.
EMILY BIGHAM: Are they in different places? Because I would imagine that it's probably a good idea that when you're setting aside money, you don't necessarily have to set it aside in a Roth IRA. You can have different accounts where this is my rainy day fund, or my whatever, and this is my emergency fund.
Is there a difference between one that's just sitting there waiting for you and you don't get any penalties for when you actually take it out, versus I feel like an emergency fund? Is that almost like a-- You know, we have a lot of different accounts here at Navy Federal, and a lot of different things that you can put cash into.
So is an emergency fund maybe something that potentially, if you take anything out of it, you get docked for it? Is the difference just in the name, or is it in the place that you keep it?
KEVIN DRISCOLL: So there's a couple of rules of thumb. And many people don't like rules of thumb. I like rules of thumb.
EMILY BIGHAM: I like rules, makes it easy. I come from a military family, though, so I'm very-- I need rules.
KEVIN DRISCOLL: Yeah.
EMILY BIGHAM: Tell me what to do.
KEVIN DRISCOLL: Right. So the period of time that you might need that money, the shorter that period of time, the fewer penalties you want to erode that. As an example, if I put $1,000 into a savings account at Navy Federal, if I take that out, there are no penalties. If I put $1,000 into a five-year certificate of deposit, there is a penalty for taking that $1,000 out, but you're only going to lose some of the interest that had accrued. You're not going to be below your $1,000. So as you--
EMILY BIGHAM: But what does that mean?
KEVIN DRISCOLL: As you prioritize your buckets-- it's really good, actually, to have penalties on long-term money. So if you invested in Tesla--
EMILY BIGHAM: Whoa, whoa-- it's good to have penalties-- whoa, whoa, whoa. OK, so what does that mean?
KEVIN DRISCOLL: So you talked about Apple. You talked about Tesla. Some of those Google, Facebook-- if I'm invested in those for retirement, the penalty of taking money out is actually lack of growth. If I take money out of Apple today, 10 years from now, it may be worth twice what it is today. So the penalty on taking money out today is really hurting my future use of that money that I put into Apple.
EMILY BIGHAM: So if you own stock right now and you sell it later, it doesn't really matter-- so OK, hold on. I'm trying to think about it at a really, really high level. So if you own stock today and then it grows, if you take the money out now, then when you say penalty, you mean the amount that you get taxed on it? Sorry, I'm--
KEVIN DRISCOLL: So from a investment perspective, you can use the word penalty and attribute it to many things. There could be literally-- you look up in the conditions and terms of the account, and it says penalty, $50 for transferring your account. That's a penalty.
But you can also say that a penalty is by taking money out prematurely, because then it's not growing. So you're penalizing yourself from not keeping it in there and allowing it to grow. So if I put $5,000 away for my retirement that will double to $10,000, will double to $20,000, $40,000, $80,000, if I take that money out before it has a chance to double and double, I just penalized myself.
EMILY BIGHAM: So you have to wait-- OK, I know I have so many questions about this. But I have kind of been trying to balance my portfolio. And so you know, I have a little money in stocks, and I have a certificate that I actually got here at Navy Federal-- I think, actually, Martin, I think it was a project you worked on. It was the 10 year, 3%-- whatever, I don't even know.
See, that's the problem-- I don't even know. I just put money there. And you know, when somebody gets a marketing promotion and it seems like a really good deal, how do you know if it's a good deal? And then to your point-- I promise it does connect back to what you were talking about.
But when we talk about penalties and all of those types of-- the language that we use here when we're working versus people who are reading about it, what are the keywords to look for, and where can you go to-- do you have to go to a disclosure or disclaimer? Or how-- is it going to be very obvious? And is this specific to Navy Federal, or anywhere that you get a product? That was like, 50 questions. If you want to read the fine print, where can you go?
KEVIN DRISCOLL: I think today, that there's more transparency today than there's ever been. You think about your 401(k)s and the fees that are paid on 401(k), that the transparency of those fees is far greater today than it's ever been. The transparency of what are the penalties if you were to-- have to break your certificate before maturity, that's right on the credit union's website.
Everything is there for the consumer today to find out if there is a penalty to that investment imposed by the financial institution. So don't hesitate to look for it if you're thinking about money for a rainy day, if you're thinking about money for an emergency, if you're thinking about taking money out to help put kids through college, or whatever it may be. You really need to go to that website of that financial institution. And nine times out of 10, it's going to be easy to find. Transparency is really important in today's market.
EMILY BIGHAM: All right, yeah-- that was a good answer to my 50 questions about what if you're confused, and you don't know. But I do want to go back to the question about a credit union versus a bank. Are there differences in the products that are available and the penalties? Or is the penalties specific to what type of investment regardless of where you get?
KEVIN DRISCOLL: Well, the huge difference, I think, from a credit union to a bank is member first. For the credit union, it's always thinking about the member-- you know, how will this affect the member? Versus the bank, its shareholders. So we always have to improve the share price of the stock. We have to make sure that the investors of that bank are taken care of.
So it's really important from a credit union's perspective, especially Navy Federal, when we talk about specials, certificate specials that you may have taken advantage of that Martin told you about--
EMILY BIGHAM: Yes, thank you, thank you to both of you.
KEVIN DRISCOLL: Yeah, it's really--
EMILY BIGHAM: I don't know what they do, but I trust you guys, so. I guess that's the point, right-- trust?
KEVIN DRISCOLL: Exactly. So the credit union really is giving back to the member. They're giving back to the member in higher certificate rates and lower lending rates. So if you have to use a credit card, chances are the interest rates that you're paying on revolving balances are lower at a credit union than they are at a bank. May not be true 100% of the time, but as a guide, that's what I believe, is that you'll find member-centric products at Navy Federal Credit Union.
EMILY BIGHAM: Yeah, I mean-- and this has been a really great conversation for me personally. I really try to put myself in the member's shoes. And sometimes, when we're talking about all these really big-picture things, it's good for a certain audience. And then I have to remember like, wait, but I have questions. And I'm sure other people have these questions.
So I really appreciate you coming online today and chatting with me. And is there anything else that you want to talk about? I'm here.
KEVIN DRISCOLL: I do want to go back to a comment you made, because I think that's a misnomer, kind of what people think. Have I accumulated enough money to go talk to somebody? And I think that's-- I think you need to talk to anybody, whatever situation you're in. Having a financial advisor, having that conversation with a financial advisor just because you just got started, or you're 10 years from retirement, don't think about the amount of money you've accumulated.
Because you're 100% right, that is going to-- say, you know what, I really haven't accumulated enough. I'm going to go talk to somebody. And it's going to look like I don't have a lot of money.
And in your situation, it may be that you have a lot of money because you want to retire at a different level than your neighbor. You want to retire differently. You want to have priorities of travel. You want to have priorities of visiting grandkids. So don't think about the money.
Don't think about, do I have enough money? If you have any amount of money that you've accumulated, it's a good time to go talk to a financial advisor.
EMILY BIGHAM: Mm-hmm. Well, it's always a good time, right?
KEVIN DRISCOLL: Absolutely, don't be intimidated by others.
EMILY BIGHAM: A strategy that I've used, or something that I've kind of realized is if you feel like you're wasting money, and you're like, you know, I really don't need-- But then again, you don't really have anything else to spend the money on. so you're just kind of like, eh, you don't have to think about it too hard-- that's when I feel like it's really good to have one of those set-it-and-forget-it type of accounts, or where part of your paycheck goes in.
When you think about an investment, sometimes, I think people think saving, which means holding on to money. But it could also mean going and purchasing that car that you want, and that you've been waiting for. But you know what, just go ahead and do it if you have the money. And then you'll be more concerned about the money that you have left. And it will help you think more about what are you spending this money on.
Does that make sense? I don't know--
KEVIN DRISCOLL: Absolutely.
EMILY BIGHAM: I feel like that's probably a mid-career--
KEVIN DRISCOLL: I think-- and I talk to my kids. I have grown children, and--
EMILY BIGHAM: What does that mean? Am I grown? Am I a grown child?
KEVIN DRISCOLL: They're in their 30s, and are married, and have families. I talk to them about the pressures, just like you talked about. Sometimes, it's good to have pressures of a loan, pressures of how much money I have left in the account. Because you're not willy-nilly spending money because I don't have anything else to spend it on.
So having pressures of I have a loan payment coming due next week-- well, I can make coffee at home today. I really don't need to go to a coffee house and spend $5 on a cup of coffee. I can make it myself.
So I don't think that those pressures you talked about are bad. Because they keep us in check.
EMILY BIGHAM: Yeah.
KEVIN DRISCOLL: They keep us financially sound.
EMILY BIGHAM: I'm going to go back to another military child haunting thing. So I had that wake-up call when it came to car payments. So I was living in California, and I'd moved out to the East Coast. And my dad had helped me buy a car.
And for a while, we were both paying for it, but it was like a set-it-and-forget-it type of thing. And then he did warn me. He was like, one day, this is going to be cut, and you're going to have to pay for the rest, and you need to be managing it.
And I was like, OK-- completely forgot. Well, I didn't forget. But then when the time came, I hadn't planned for when I had to start making those payments. And that was a wake-up call. And that was like, all right--
And thankfully, you know, I was managing the rest of my money fine, and wasn't going nuts. But I didn't realize how much I needed to think about it until I was almost at that little brink. So it's probably better to wait for those types of wake-up calls than the big wake-up calls.
And it's maybe going to practice a little bit with that, too-- like, set aside money and be like, OK, can I budget with this amount of money this week? Like, what is my threshold?
KEVIN DRISCOLL: Yeah, it's funny you mention that, because as we get a little bit older, those wake-up calls we had earlier in life help us avoid wake-up calls later in life. And so those are good scars. Those are really good situations that will develop some of your later decision-making.
EMILY BIGHAM: Kind of like the app, the Digital Investor app, right?
KEVIN DRISCOLL: That's right.
EMILY BIGHAM: That's kind of like-- it's almost like training wheels. And you can kind of play with that a little bit and see like, OK, where were the smart decisions, the not smart decisions based on how well you're doing, or--
KEVIN DRISCOLL: Yeah, I think you're right. But I also think that as people put money into an application like Digital Investor, it's not something that you should go into-- I have $1,000, and I don't care if I lose 20%. I don't care if I lose 200 bucks.
It's something that may turn into future success for you. It may create enough revenue, it may create enough of an asset to help you meet a goal. You may be saving for sending the kids to college in five years or 10 years.
And if you have less money because you're just playing around with it, it's hard to tell your child, well, you can only go to school for three years. I know I told you four, but you can only go to three because I lost your money just playing around. So it's really important to take your investments very seriously, even on an app like Digital Investor.
It's a learning tool. It's something that-- it is learning with training wheels on. But it's not something that-- We work too hard for our money, I guess is what I'm saying, Emily.
EMILY BIGHAM: Yeah.
KEVIN DRISCOLL: [? I worked ?] too hard for my money to throw 20% of it away because ah, it was just learning.
EMILY BIGHAM: So going back to my question about the risks, and what are the big risks, it's almost like, as long as you're paying attention and you feel like you're-- you feel comfortable with it, and you've talked to people, and you've done your own research, you understand what's important to you, you can sleep at night, you've talked to [? someone at ?] NFFG and you have a balanced portfolio, then I think as long as you have-- It's almost-- what do they call it-- almost like a planned risk, or-- is there a word for it, when you think about-- you're taking a risk, but you're almost-- Like, people who take big risks, they always say like, well, I didn't really take a big risk because I did so much--
KEVIN DRISCOLL: Educating.
EMILY BIGHAM: --planning and prep for it.
KEVIN DRISCOLL: Yeah, educated risk.
EMILY BIGHAM: I guess-- yeah, that's I guess what I'm trying to say.
KEVIN DRISCOLL: Yeah, absolutely. I mean, we talk about that with members all the time. What is an educated risk, and what is an uneducated risk, you know? And so if you want to put money, for example, into a certificate that pays 1%, and inflation is 2%, your risk is that that money is not going to keep up with inflation. It's not going to buy as much tomorrow as it did today.
If you're comfortable with that risk, it's an educated risk. Go ahead, take it. If you want to put it into a balanced portfolio, and you know it may go down, it may go up, I'm comfortable with that risk. So an educated risk is really what you want to do as you move into retirement. Take educated risk versus uneducated risk, because the uneducated risk is-- that's tough.
EMILY BIGHAM: That'll keep you up at night, for sure.
KEVIN DRISCOLL: Yeah, that's tough to bounce back from, yeah.
EMILY BIGHAM: Well, I've definitely kept you too long. But I've really been enjoying this conversation. I've learned so much.
And it's funny, thinking back to an hour and a half ago, and I was like, how are we even going to talk about a plan for retirement during a pandemic? Like, every word in there-- plan, retirement, pandemic-- all those words are scary to people. So I really appreciate the fact that you've been able to kind of help me understand and make sense of all of it.
And just to make sure, is there anything else, any last words that you want to get in there or say? Where can they find you? Where can the people find you?
KEVIN DRISCOLL: People can find-- NFFG through--
EMILY BIGHAM: Well, yeah.
KEVIN DRISCOLL: --through the credit union's website. We are available simply by typing in NFFG into the search within the credit union's website, and our pages will come up. But NFFG, like you said earlier in the conversation, is a wholly owned subsidiary to the credit union. And we--
EMILY BIGHAM: What does that mean?
KEVIN DRISCOLL: That means that because many of the products that we offer for our members involve risk, they're not protected by NCUA. The risk that you may have less money is real if you make an investment in Apple. It may go down.
EMILY BIGHAM: Do you have to apply for a Navy Federal membership and an NFFG membership, or one comes with the other?
KEVIN DRISCOLL: You do not. So you don't necessarily have to be a member of Navy Federal Credit Union to work with NFFG, although probably 99% of our clients that we work with are Navy Federal Credit Union members. Being a wholly owned subsidiary, we are a CUSO, a Credit Union Service Organization. So we benefit the members of the credit union.
EMILY BIGHAM: So you operate a little bit differently, which is why you're separate from Navy Federal, and why you don't have to be a member? And I only ask that question because I know that there's a lot of questions about the business side of Navy Federal, the business solutions. And you do have to apply for Navy Federal membership, and then you have to become a business member.
So just wanted to make that distinction in case that was a question. But that's great. Well, thank you Kevin so much for again, joining me in this. I know this went way longer than it was supposed to. But that's great, because there are so many interesting things to think about and questions, even though retirement's an interesting word.
And a couple of things that we talked about-- so we talked about some of the products. But I think rather than getting really into the products, you'd mentioned the Roth IRA is one of the most popular. And then also Digital Investor, if you're kind of looking to play in the stock market a little bit. But what it really comes down to is managing stress, and also just making sure that you have a plan. And there's no better way to do that than to talk to someone who's an expert, and someone who knows you, which is--
This has been a really great conversation. And thank you so much. I hope you have a wonderful rest of your day, and--
KEVIN DRISCOLL: Thanks for having me.
EMILY BIGHAM: --and thank you everyone, for tuning in. This is Emily Bigham. I'm your podcast host for MakingCents. And you can download and subscribe to MakingCents anywhere you get your podcasts.
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.
ANNOUNCER: Navy Federal Credit Union-- our members are the mission.
Episode 6: Planning for Retirement During a Pandemic, Part 2
Join as we continue our timely retirement planning discussion with Kevin Driscoll, Vice President of Advisory Services at Navy Federal Financial Group. In this episode, we’ll talk emergency and rainy day funds, certificates, financial pressures, the choice between a credit union and a bank and more.*
GUEST: A financial advisor for more than 20 years, Kevin Driscoll is Vice President of Advisory Services at Navy Federal Financial Group.
*These products are not NCUA/NCUSIF or otherwise federally insured, are not guaranteed or obligations of Navy Federal Credit Union (NFCU), are not offered, recommended, sanctioned, or encouraged by the federal government, and may involve investment risk, including possible loss of principal.
[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.
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Episode 6: Planning for Retirement During a Pandemic, Part 1
In this episode, we share retirement planning guidance from our team at Navy Federal Financial Group. Hear from Kevin Driscoll, the group’s Vice President of Advisory Services and a certified financial planner of over 20 years, as he talks through what you need to know. Expect conversation around retirement planning, IRAs, the effect of COVID-19 on retirement accounts, tips to help you choose between blended retirement system vs. traditional 401(k) or IRA and more.*
GUEST: A financial advisor for more than 20 years, Kevin Driscoll is Vice President of Advisory Services at Navy Federal Financial Group.
*These products are not NCUA/NCUSIF or otherwise federally insured, are not guaranteed or obligations of Navy Federal Credit Union (NFCU), are not offered, recommended, sanctioned, or encouraged by the federal government, and may involve investment risk, including possible loss of principal.