Description: This passage is designed to tell you about empower retirement login, including the differences between 401k, IRA, and trading stocks, comparisons among buying a house, renting a house and putting money on 401k and IRA and offering advice on saving money.
I’m going to answer one of the most common questions that I get though. I’m not sure why you asked me this question, because I’m not a financial adviser. I get frequently asked like what’s a 401k? How much could you put in? What’s an IRA individual retirement account? How does it work? How much money do you put it in? When do you start?
I also get a lot of questions on housing like should you buy a house? Or should you rent a house? I am not a financial adviser but that might be better, because financial advisers can be biased. For example, I visited my financial adviser at Bank of America. Bank of America is a bank and Merrill edge is their investment division.
I wanted some advice on buying house, but it turns into almost a sales pitch for me to take a loan from them, so financial advisers have reasons for you to put money into these accounts, because they make a commission or a fee. Their survivability is based on your believing that these accounts are important.
I’m going to start off with a 401k. 401k is a way to save for retirement through a company. Keep in mind that you’re wholesaled to an investment company, you work for Google and Google’s dues do their investment 401K through Merrill edge. It’s not true. I’m using it as an example, so you have names to things.
Google sells all their employees as a 401k package tomorrow edge. Merrill edge cuts Google a better deal because it’s a wholesale package. I guess everyone wins a little bit except there’s a little bit of a problem, so everyone knows that they should invest into a 401K.
No one tells you on average what your return is going to be and a lot of times when you see these compound interest graphs saying: “We start when you’re young 20s and you put $200 a month, you’ll end up with like three million or two million.”
Ridiculous numbers! They typically use return rates that you would never get in real life. A lot of these graphs they’ll use ten to fifteen percent return on investment. In real life, you’ll never get that amount like most of time with 401ks, you’ll get around five percent if you average out all the years. Some years you’ll get lucky and you’ll get 13 percent, but the next year you might lose and you might lose five percent.
It’s going to average out to about five percent and I invested into my own 401k and I see about a 5% return as well. 5% is a crap. Let me explain why. I’m going to do some math here. If you don’t want to follow the math the TLDR is that you don’t make that much money.
You start off with $10,000 and you put in another $10,000 every year into your 401k at 5% for 30 years. At the end of 30 years you end up having about seven hundred and forty thousand dollars. That’s good. Except considering this, 33 hundred and 10 thousand was the original amount that you put in, so it’s your own money.
You only made about 2.5 times your original amount in 30 years. That’s like your whole almost working lifetime. It’s also important though in thirty years, everything will be twice the price, so even though you get 2.5 times more money, things cost twice as much. You don’t get that much money. On top of that, not many people can put away 1,000 or 10,000 dollars every year for 30 years. This is hard especially after tax and life happens.
You might know that some companies might match your contribution to your 401k. This seems great, but then there’s an independent study done by a some sort of Association and they found out for every dollar that a company is willing to contribute, they’re going to pay you one dollar or less. It doesn’t matter that it’s like the same thing, but in the end if you don’t have a choice.
If a company offers to contribute, it’s not like you can say: “ no, no, I don’t want that contribution I’d rather get cash or pay a higher salary.” That’s not how it works. If they give you contribution, then they give everyone in those contribution as well to their 401K.
One thing to be aware of though is something called vesting which means that you don’t own the company’s contribution, so you put in ten thousand dollars into your 401K and the company contributes half of that.
They add another five thousand dollars if you only work for the company one or two years. If you leave the company, they can take their money and their contribution back. Vesting years is between four to six years and there’s a legal limit at six years that they have to give you a hundred percent of their contribution. if you leave that company at the sixth year, you keep a hundred percent of what the company contributed to your 401k.
That was confusing. It shouldn’t be if you have a 401k as it makes complete sense. Next topic is what happens when you leave a company? You leave the company and you can’t have that 401k anymore because it’s with that company.
When you leave a company whether it is being fired or laid off or the company goes under or for whatever reason, you rollover your 401k into a IRA individual retirement account. All the money dollar goes into an IRA.
There’re two different types of IRAs traditional and Roth. The basic difference between two of them is that for traditional, you’re taxed when you take your money out, but you get a tax deduction when you put the money in for Roth, you do not get taxed when you take your money out when you retire, but you get taxed when you put your money in.
You want to choose a Roth IRA over a traditional, because you’re taxed at a tax bracket at a current time. For Roth, since you’re taxed when you put it in, most of us are going to be making less money when we were younger, and then when we pull it out, we’re not going to pay tax. For traditional, you’re going to get that immediate deduction today but when you’re older, you’re going to make more money, because people make more money as they get older.
When you’re taxed for pulling money out, I think it’s legal to pull it out 59 and a half or something like that or you stop contributing something like that, but when you pull it out at that later age. Your tax at that moment is more. A 401k is a little bit different from an IRA and an IRA you control where your money is almost exactly like a stock. It is like a stock. You buy stock, so you buy mutual funds stuff like that 401K.
You pay someone to do that for you, so that’s why in general you don’t make too much money for a 401K, because you’re paying someone to invest it for you. You can turn IRA up with more money in general, but you have to watch it yourself. Now beginning your individual retirement account. I recommend starting out with a mutual fund.
If you don’t know which one to start off, Vanguard has a very excellent record and then the other one that I’ve tried before is Blackrock. In general, as long as you choose a reputable mutual fund. You can’t go wrong. For the most part, they’re safe and on average, you’re going to get five to six percent. That’s what you get, so this is how I handle my IRA and I’m not a fan at reviser.
I’m not experienced, but it works for me, so what I’ll do is to put all my money in a mutual fund like Vanguard or Blackrock. I have a few months when I’m bored. I’ll look at stocks and if I see a big company like Disney drop down which hint. I’ll put all our sell on my mutual funds, buy all Disney and the way for Disney to come back to its average or maybe a little bit above its average and sell all Disney, then buy my mutual fund back.
That’s typically how I trade. I don’t want to watch the stock all the time. I want to look at a dip and make sure it’s a large company. Every public company is probably big, but company that has been around for a long time has good reputation like Disney or Raytheon. Wait for the dip, sell all your mutual funds, buy the stock, wait for it to get back to average or live above average. Don’t get greedy. Sell it and then buy the mutual fund.
That’s a very safe strategy. It works for me and now what I like is that I don’t have to always watch a stock. If I get busy with life, leave in a mutual fund. It isn’t going to go down up too much. That’s my training strategy. They don’t patent it for you. You don’t need to read a trading book anymore.
The next big question is that you should start saving for retirement. Start putting money in an IRA and 401k as soon as you start working and put as much money. Put thirty percent of your income or at least 15 percent of your income.
Otherwise you’re going to be screwed when you get older. Social Security aren’t going to beat your true, but it is not the best allocation for your money. There’s something that you can purchase which is much better than putting it into a retirement account or a 401k.
That’s buying a house. Buying house is careful to you, like the mayor Merrill edge man who tried to sell me alone, so you got to be careful, because there’re a lot of people who rely on you believing that you need to buy a house.
Unfortunately, it is good to buy a house in the end. I had a guest on my channel called Callan Diggs and he said in some rural areas with sparse population, it could be cheaper to rent at the spectrum of your life. I know that it fits my demographic perfectly.
There’s a lot of talk in my generation and in the younger generation who’s coming out of a college or in college. It’s sexy to talk about it, so that’s why you always hear people talking about it and it’s not sexy to talk about buying a house.
It’s not sexy at all! This month I didn’t do anything with my money except putting it in a checking account, so I could buy a house in two or three years. It’s not fun either.
I think a lot of Millennials or a lot of people who are in their 20s underestimate how hard it is to say for a house. It’s hard. For a house in a more metropolitan area and urban area, you’re going to need about sixty to eighty thousand dollars to buy an entry-level house like a condo, because they’ll give you about 20% on your down payment, then you can buy a house that is about 300 to 400 thousand.
That is a bare minimal house these days. In some cities like San Francisco or New York, you probably need twice that amount, because their entry level homes are probably around 600 to 800 thousand. Ridiculous! A lot of people coming out of college overestimate how much money they can save.
A lot of people especially me thought that sixty to eighty thousand dollars will be easy and then you start working. It’s hard to save up for that. You could start working at 22 or 23 and save till you’re 30 and you’ll barely have sixty to eighty thousand dollars. That’s realistic.
In general, you want to have 20% down on your house, you have to call a pay for something called PMI which refers to private mortgage insurance. Basically, the banks say they’re taking a liability by giving out this loan and you haven’t paid enough equity into the house, so they’re going to make you pay more money like an extra a couple of hundred bucks for nothing. When you want to take off the PMI, it’s not that as soon as you pay 20 percent of your loan, PMI instantly comes off.
You have to write a letter request for them to take it off and sometimes banks go a little slow on that and it’s a pain in the butt. When you buy a house, you want to save that complete 20% and on top of that it’s not to avoid PMI.
It’s also to have a stronger bid, because buying house isn’t like buying something from Amazon or renting an apartment. You have to be against other people. If you’re bidding against someone with dual income and you have your own income, you’re going to need a large down payment to you.
Even though buying the house is the best way to allocate your money at a younger age, there’re always stipulations. For example, not a lot of young people know where they’re going to live. When I graduated college, I wasn’t sure that if I am going to stay in L.A. or North Cal or New York. I didn’t want to go to somewhere random like Idaho. I was sure where we want to live. So one day, I highly recommend that as soon as you graduate college, whatever city that you’ve been dying to live in, live in that city as soon as you graduate get a job.
They’re doing anything even if it’s like being a bartender move to that city as fast as possible because what tends to happen to equal is that where you get your first job out of college is where you settle down for the rest of your life. This is not for everybody, but this happens to a lot of people so that make sure your first job is in the city that you want to work in. People should only travel in their 20s when it’s a city that you want to live in.
There’re always other exceptions. In general, if you want to travel and you have a friend’s place to stay at, it’s cheap, I went to Missouri in December or November to visit a friend. I stay there for a week and the whole trip only cost me four hundred or five hundred dollars because I had a place to stay and the plane ticket wasn’t like 250, so do a little bit traveling.
If you do travel internationally, it will usually cost you between two to five thousand dollars easily and that two to five thousand dollars obviously is going to delay you having a down payment for your house.
It’s hard to choose between two and in my opinion, you should buy the house first and then travel. If you buy the house and you don’t want to live in it, because you want to travel, that’s fine. You can air and B&B it. I have a friend who does real estate can do some property management movement for you and need be paid a little bit. You may even make money on your property to help you pay for your travels or you can rent it out.
Though with renting out, you aren’t going to make much money off of it, because you’re going to be paying your mortgage and paying someone to do a property management for you, if you Air b&b it, it’s like ten nights you already pay for your mortgage.
I am not rounding. With Air b&b place like 20 to 25 nights a week, you’re going to make money, but hopefully you pick a city where people travel to you, because if you pick Idaho nobody travels there. You’re not going to get too much Air B&B business unless it’s like in the state capital.
I recommend saving the money anyways even if you don’t have a location that you want to live, because what will happen is that you might not have a permanent place in mind by the top, but by the time you have 60 to 80 grand, you will likely already have an idea. When people reach their mid 30s or early 30s, they have a general idea where they want to settle down permanently.
What happens to a lot of my friends is that they get to the early 30s and realize they want to live in Southern California for the rest of their life, but have no money saved up for a house, so they have to keep renting and renting.
If you’re always renting, you never have time to save up for a house, so what a lot of you are going to have to do is to live with your parents in your 20s so that you can buy the house much faster than someone who rented and try to save a couple hundred every month and potentially never have enough money for that down payment. If you are renting an apartment, in my opinion, it feels like a waste of money.
There’s times when I was paying $700 to rent a room from someone in California and now I don’t live there anymore. I feel like that I spent 8 grand to live there for a year and I don’t have 8 grand and I don’t have an ending show for it. I live there for a year. It is the biggest waste of money.
Don’t put too much money into a 401k or IRA until you bought a house. You don’t have a specific location in mind where you want to buy house, because you’re in your low 20s and you’re not sure where you want to sell yet. That’s fine, because by the time you see about that money and you’re like thirty years old, you’ll probably have a location in mind. The one exception for a 401k is that if your company doesn’t match contribution then obviously put up to that limit.
I don’t think it’s worth to put into a 401k or IRA until you bought a house and you’re probably not going to want to put 401k or IRA money away at that time, because you live with your parents for like ten years. You probably want to go travel or buy a car, but buy something nice for you, because it’s hard saving up money like sixty to eighty thousand. It takes years, once you buy that house, you want to treat yourself something nice besides the house which is a necessity.