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Your Money: How To Invest And Plan For Retirement

April 26, 2018 1:39 p.m.

Your Money: How To Invest And Plan For Retirement

GUEST:

Paul Lim, financial planner, The Wealth Consulting Group and adviser, San Diego Financial Literacy Center

Related Story: Your Money: How To Invest And Plan For Retirement

Transcript:

This is a rush transcript created by a contractor for KPBS to improve accessibility for the deaf and hard-of-hearing. Please refer to the media file as the formal record of this interview. Opinions expressed by guests during interviews reflect the guest’s individual views and do not necessarily represent those of KPBS staff, members or its sponsors.

You see and hear the ads everywhere, how to save for retirement, do you know how much money you will need when you retire. Will you have enough. The questions are intimidating especially if you think you have very little to save and you don't know how to invest. In the final installment of our series, your money, we will talk about investing and saving, and at least give you an idea of the right questions to ask. Joining me is Paul Lim, he is a financial partner with the wealth consulting group and he is also on the board of advisors for the San Diego financial literary sent center. Paul, welcome to the program.
Of course, thank you for having me.
Let's start with a intimidating question, we hear so often, how do you start to figure out how much money you will need to save for retirement?
Really, if we were to lay this out as a process, you have to envision what you want your retirement lifestyle to look like, first and foremost. Now, in talking with different people about goals, one of the things you will find is that a lot of people, really want kind of the same thing, people express all the time, about how they don't necessarily want a lavish lifestyle, but they want to become to, they don't want to worry about money, so the first thing to do, is to measure what that looks like and so, being able to answer the question about, what lifestyle would you desire, in today's dollars, for one month of living expenses, if I were to give you this much money, you would be yourself for an entire month. What is that number? That then helps us to figure out, what is an annual cost of living, that you should really budget for, and that will be one of the first variables in the equation that we go through.
Apparently almost 8 out of 10 Americans say they live pretty much paycheck to paycheck, and Americans are carrying a large amount of debt. So, realistically, how high a priority should it be, putting aside a few dollars each week for retirement?
Absolutely is something you should really build into your bills some of the financial industry calls that pay yourself first, and what that means is you really put away the dollars for your future self, first, before you pay any other bills, and this is a remarkable thing, that can actually alleviate some anxiety, because if you say metaphorically that you are doing your homework first, then you can actually enjoy whatever is left at the end of the month, and not beat yourself up over it, because you have already done the important heavy lifting from a financial perspective. So, automate your savings, you simply make it so that, certain portions of your paycheck automatically go into an employer's plan, like a 401(k), or 043B, and if you do not have that, set up automatic debits to occur, on let's just say, the second and 16th of each month if you are paid at the beginning and middle of each month like many people are. Automating good behaviors is kind of a way to look at it, in that if you set those good actions, on autopilot, you don't have to be conscientious 24 times a year, and make yourself do those things. If you put it in place, you will figure out a way to make ends meet. I putting those action steps in force and working at it.
That's the way to make the most of the types of retirement plan, that you are employer during -- your play offers. What kind of personal accounts should individuals consider starting?
You can always open up what an IRA, individual retirement account, this is different but it's also similar in many ways to larger employer-sponsored plans. You can simply establish your own traditional IRA, or Roth are IRA depending if you need tax deductions and simply automate the same savings into your own account. That is a great way to do it, on your own and, basically initiate the process of saving, even if you do not have access to a retirement plan through your employer.
Should you have both? Should you do an employer plan and have your individual one as well?
This is an answer that will come up a lot, it depends, and so, your particular circumstances going to dictate whether or not you should have both, so for example, if you make more than a certain amount of money, you are actually not allowed to deduct, contributions to a traditional IRA for example, there are certain rules that simply invalidate your ability to deduct that, so in that circumstance, it would not make sense to do so. But, again, being able to figure out exactly, what strategies make sense for an individual, is the process of finished planning.
Many people invest solely for the purpose of retirement, but some may want to venture into investing for other reasons. Is there certain amount of money you need to have before getting started in investing?
One of the things that we talk about which is called a cash reserve, so this is 3 to 6 months of your living expenses, in boring cash, before you invest a dime in the market. It is almost a test, because if you can't force yourself to build up and accessible savings account, of the living expenses, it's going to be really difficult for you to put money away in your retirement plan that you really should not touch until you're 50 1/2 years old, so anything, the cash reserve not only serves as a way to excess dollars in an emergency, without paying penalties with and drying those, but it's also a good test to see if you are a good saver, yes.
Now we have a question from a listener.
Hello my name is Dominic and I'm from San Diego California, and at the 27-year-old, and I recently came up some money for my late mother's I currently have a 403B account for my school, I am looking to invest those additional and have access to those funds if needed for any future expenses.
What would you advise Dominic to do?
Will the first part of his question, that would be the most busy to answer would be about the type of account, into which he would place those proceeds, so you would want to put it in likely, a nonretirement account, some of those call it brokerage account, the technical name in the financial industry is nonqualified brokerage account, for example, this is money that you are allowed to touch, prior to 50 1/2, so if he says he would like to have accessibility to those funds, that is likely one of the first places he would have those dollars, he would have to put those all in one place, he would put some of those dollars, in an account that is accessible, some of the dollars, into a requirement account, for the long-term, and this goes back to the principle of diversifying, when we don't know what to do, in light of uncertainty, we diversify. This kind of goes to the second portion of his question which is really about safety, he mentioned safety, and that could mean different things to different people so it's important to understand, what exactly he means by safe. We talk about the diversified portfolio, owning a little bit of all types of assets that are out there, because no asset is perfect. Every single one has different advantages and disadvantages, so, the best plan for most people, if they desire safety, which again means different things to different people, is to diversify those investments, you do not own just one type of investment, you don't put all your money in just one type of account. You have to utilize a collection, a combination of all those different parts, in order to make it so that no one particular economic event, or no one particular economic circumstance, will cause you great financial harm.
I've been speaking with Paul Lim, a financial planner with the web consulting group, Paul, thank you very much.
Thank you.