Who’s Making Sure Your Finances Are In Order So You Can Retire One Day?

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Who’s Making Sure Your Finances Are In Order So You Can Retire One Day? with The Millennial Money Woman Fiona.

I’m The Millennial Money Woman. Also known as Fiona. Entrepreneur. Polyglot. Pundit. World Traveler. Dog Lover. 

I want young professionals to have what I didn’t growing up: A guiding hand to help make the right financial decisions NOW so that their FUTURE will be a seamless ride. 

The first time I discovered my passion for finance was when I saw my grandparents lose every cent to their name, after some poor financial planning. They worked all their lives, every day, and when they neared their retirement – their hard work fell to pieces because they didn’t practice healthy financial habits.

That’s when knew I wanted to jump ahead of the game when it comes to finances, so I gathered my resources, stuck my nose into books and learned as much as I could.

I would not allow anyone to make the same mistake.

My educational background has allowed me to help young professionals navigate the sometimes-murky waters of finance:

  • Certified Financial Planner (CFP – which is the equivalent of a financial ninja)
  • Chartered Retirement Planning Counselor (CRPC)
  • Master of Science in Personal Financial Planning degree

Because I gained knowledge and practiced healthy finance habits, I purchased my first house at 23, have no debt (minus my mortgage), co-founded a financial non-profit program in my community, and am on my way to millionaire status in just a few more years. Most importantly? I met the love of my life in my best friend and partner in crime, my husband.

I’ve been through a lot although I’m only a Millennial, and I’m here to pass down the tens of thousands of hours of reading, brainstorming and real life experience I’ve had so far in finance to YOU.

Here’s to you and starting your financial journey!

The Millennial Money Woman Website
Listen to more episode of The Business of Business Podcast

Full Transcript Below

Roy – The Business of Business Podcast(00:00:02):

Hello, and welcome to another episode of the business of business podcast. I’m Roy. So today we have an awesome financial voice to come speak with us today. I think it’s important. We talk about the mechanics of business and doing this and doing that.

But also need to think about ourself and our savings because when we’re entrepreneurs solopreneurs, small business. We may not have access to the, uh, big 401ks and other vehicles that some corporate employees have. So, uh, we’re fortunate today to have the millennial money woman. Also known as Fiona coming on the show to talk to us about a few things.

Uh, she, and I think this is important because we were kind of joking about this, but I want us to take her serious. Because it’s not somebody that had just kind of like Googled finance yesterday and decided to come on and talk. She has earned her a certified financial planner CFP. Which is a very high in designation in the finance industry and very difficult to pass the test.

Also, she is a chartered retirement planning counselor, and she has her masters of science and personal finance planning. So with all that said, Fiona, welcome to the show. And I can’t wait to hear all the great advice you have for us today.

The Millennial Money Woman (00:01:27):

Roy, thank you so much for having me on the show. I’m really, really looking forward to talking to you about some retirement advice. Yeah.

Roy – The Business of Business Podcast(00:01:34):

So why don’t you, uh, why not before we get too far into the, um, talking about the vehicles and you know. We’re going to talk a little bit about active and passive investing as well. But once you tell us a little bit about, you know, how you got here.

I know that, uh, in our previous conversation that, uh, you bought your first house by the time you’re 23 and had no debt. Uh, except for the mortgage itself, which you know, that that is a huge feat nowadays. Uh, you know, back in my day, it was a much, much easier task. But kinda tell us a little bit about how you, how you got to this point.

The Millennial Money Woman (00:02:10):

Sure. I’d love to, um, so I guess I’m going to start out actually, where I kind of got my passion for finance and that started out at a pretty young age actually. And so I would say I was roughly six to 10 years old and yeah, I know. Right. But it actually started from my grandparents.

Um, they were my total idol. I looked up to them and everything they did. And so to give you a little bit of context, my grandparents, they started a business together, my grandmother and my grandfather, and they built it from the ground up, worked every single day.

It wasn’t a major business. It was, it was your everyday business, essentially. However, I saw that it was basically their baby, right? They put in rather time effort, sweat equity, you name it into this business. And when I, roughly 12, 13 years old, um, something unfortunate happened due to poor financial planning.

The Millennial Money Woman (00:03:06):

Um, in other words, they, my grandparents, they, I think, you know, mortgage their house and a couple of other assets. So long story short, they went bankrupt and they literally lost everything that they had put into this business and their lives that’s terrible.

It really was. And they, at that point, you know, they were probably early seventies, late sixties, something like that. And uh, at that time, you know, obviously employment is you’re, you’re basically, unless you employ yourself at that age, it’s very difficult to find employment, um, due to your age and learn a new skill.

So I saw them pour in every single cent into this business, lose everything and probably more. And that’s how they essentially passed away. Right? They did not have a single cent to their name, although they put so much work into this business. When I saw that I never wanted that to happen to me, my family, or anyone else that I can help ever again.

The Millennial Money Woman (00:04:02):

Um, and that was probably when I was in my early teenage years. And although I didn’t really know the full ins and outs of finance like I do now, that was the starting point to my wanting to delve into that financial world. So I can really help others understand financed plan better for their financial future and never again, have something like that happen to them.

So, um, that was the Genesis. And then, like you said, I went to college, I studied finance. I, I was lucky and unfortunate enough to understand that student debt is not, uh, not beneficial. So I, I was able to actually shorten my college career to two years. I worked 40 plus hours a week on top of taking the maximum class load.

And I graduated at 20, um, and started my career. And that’s how I was able to kind of get that small jumpstart ahead of my classmates, get into that working world, um, and save up enough money for that 20% down payment for my house at 23. It was just that planet. Right.

Roy – The Business of Business Podcast(00:05:03):

Right. Yeah. And I think, you know, you bring up a good point of kind of why I wanted you on the show to talk about this. As we, as I said in the intro is a lot of times a business people, especially like I said, the solo preneurs entrepreneurs and small businesses with.

You know, 10, 20 employees, we are so caught up in the, um, I guess the minutiae of what’s happening in the business at that day. We don’t think about that. You know, that was a tragic story that they lost everything, but it’s not uncommon, you know, businesses change, we don’t keep up with things.

And then we get to some point in time and it’s just over with, and the business is not worth anything. We haven’t saved anything and it can be treacherous. And then, you know, kind of the, the not so tragic part of all of that is that, you know, even if you have a thriving business, if you’re a solo preneur where it depends upon you, you get to the end of time and you’re like, Hey, I want to retire.

Nobody wants to buy the business because it’s in your name. You know, basically it’s your name is where the value is not necessarily the service. So, but if you haven’t put anything aside, you’ve got nothing to retire. You end up having to, you know, either work too, you die. Or as you said, get a menial job because you know, when you’re even when you’re 60, 65 years old, it is difficult to go out and market yourself, uh, just to get a regular job somewhere.

The Millennial Money Woman (00:06:36):

That’s exactly right. And unfortunately we see it all too often that, you know, as you go into that retirement stage, even age 40, 50, 60, you realize, you know, looking back, Oh my goodness, I should have saved. I should have, um, you know, been a little bit more cognizant of how much I’m putting away toward retirement savings. And, um, just to share a very quick story, Roy.

I was counseling a client actually the other day. Uh, she was just turning, I believe it was 71 or 72 years old. She and her husband ran a successful printing business in Chicago. Uh, and however, this one statement, she told me during our conversation, it was so poignant. It just left a lasting impression.

And she said, my past is catching up with me. And that, that basically reflects back on them investing everything into their business, which was extremely successful, but they never took the time or energy or effort, I guess, to put some money into savings and retirement.

You know, in the end they, they have, you know, a few hundred thousand dollars, but it’s not going to cut it, you know, at age 70. She needs to go back to work, uh, just relative to their lifestyle. Definitely you made a great point. You’ve got to save early.

Roy – The Business of Business Podcast(00:07:47):

Yeah. And, and that, there’s another fallacy, you know, I worked in, uh, in, you know. Kind of in the financial advising sector back, you know, it’s been 25, 30 years ago. And even back then there was this fallacy that, Oh, when I retire, I only need 20 or 30, 40, 50% of my income to live on.

You know, that was kind of the running joke is, well, no, technically you’re probably going to need about 125%, 150%. Because when you retire, especially in the early days, people don’t want to just, uh, well, a lot of times if you, if you’ve planned it and you, you were in good health, you’re not want to just sit around and watch, uh, judge Judy all day long.

I mean, you know, people want to get out, they want to do, they’ve been wanting to travel. They’ve been so tied up with this business that they couldn’t do vacation. So now it’s like, Hey, we’re going to travel, but it costs money.

I mean, you can’t retire on 50% income and expect that you’re going to be able to retire or any, you know, when I say income it, you could have a lot of assets, but they generate so much income for you every month. So, uh, you’ve got to have something in order to keep up, if you want to have an active in a lively retirement.

The Millennial Money Woman (00:09:02):

Absolutely. I mean, you know, I was laughing earlier because I’m the one that’s actually watching judge Judy now every day. And I’m telling you, Roy, I do not want to watch judge Judy when I’m 65,

Roy – The Business of Business Podcast(00:09:16):

We’re on vacation last week and we were flipping some channels and it’s like, they had three channels with her on all the time. Like, Oh my gosh, we were in judge Judy purgatory right now.

The Millennial Money Woman (00:09:31):

That is too funny. Well,

Roy – The Business of Business Podcast(00:09:34):

Let’s talk about, uh, first off, let’s talk about the active and passive passive of, um, investing, because I think there, whether you, um, want to invest in one of these retirement accounts or not, you know, you should.

But if you choose to just do regular, uh, some kind of regular investing, regular brokerage account, the active and passive will still work for you. And then if you want to take advantage of some of these other counts, we can talk about that in a little bit.

The Millennial Money Woman (00:10:06):

Yeah. I’d love to talk about active and passive management. Um, so I guess I’ll start out by saying that, you know, especially for those that I’ve encountered from the young professional millennial, uh, generation, so we’re talking about 21 to perhaps age 40 or a little bit over age 40, um.

There’s this common fallacy that I at least hear talking to the clients that I coach and that is not active management in other words, day trading, right? So like really focusing on your stocks every single day, trying to make those trades to really time the market, um, is beneficial to retirement savings.

And as we have that first couple of, you know, first minutes of conversation, I really hear that a lot of people believe active management is the way to go. In other words, spending, yeah, it’s spending like 30 plus percent of your day focusing on your investment portfolio, be it retirement, or just a regular investment account.

The Millennial Money Woman (00:11:01):

And that’s really not the case. And especially with younger folks out there, um, I think it’s really important to educate them about what active and passive management is. So let me start out by kind of showing the difference.

Okay. Active kind of, like I said before is really focusing on almost a daily basis or weekly basis. Even at your investment accounts and trying to essentially time the market. To make sure you sell low and buy I’m sorry, sell high and buy low. That would be the ideal world, but unfortunately not many of us have a crystal ball. Uh, so that’s really not going to happen.

And actually I found this really interesting statistic. Um, and it says that essentially missing out on just five key days in the markets over a period of 13,870 of investing. So that’s about 38 years that would leave your portfolio, your investment portfolio lower, or by 30% less that’s. I mean, that’s just unbelievable, right?

I mean, so the fact that you’re trying to be in and out of the market over a 38 year period. And just missing five days. That could cause your portfolio returns to drop by 35%, which is just insane. And, you know, moving on to that even more. If you missed the 50 best days, so not five. he 50 best days your portfolio would be by 91% smaller than if you had just left that money in the stocks the entire time. Yeah.

Roy – The Business of Business Podcast(00:12:35):

Yes, no, I was just, that’s one thing that, you know, we used to preach, it’s not timing the market, it’s time in the market and it’s such an important distinction to make

The Millennial Money Woman (00:12:45):

That’s exactly right. Roy and I really liked how you said that it’s not timing the market, it’s the time in the market and that’s absolutely true. I mean, in reality, there’s, there’s a, uh, investment strategy that’s known as dollar cost averaging. I’m sure you’re familiar with it.

Um, and what that means is basically you want to purchase shares of a high quality low cost stock, or my preference is an index fund, right? So we’re talking maybe S and P 500 index funds, uh, something like that. And you literally just purchase those shares consistently regardless of what the market is doing, right?

So you’re basically buying more shares when prices are cheap, because it’s a consistent purchase price and that will ultimately boost your longterm investor returns. So to give an example over the last 50 years, the S and P 500 has generated roughly a 7% return.

The Millennial Money Woman (00:13:42):

Um, so that means if you had started, you know, when you’re, let’s say 25 years old or 30 years old, and you just, you know, set it and forget it. So you buy stocks consistently, um, every week, every month, whatever it is, or 40 years.

Let’s say your working career, and you open up your portfolio at the end, when you retire, chances are, you’ll definitely be a millionaire. If not more, it just depends on how much you buy and what you buy the point is, though it will save you so much time and so much stress if you do not open that portfolio every single day or every week, right.

And monitor the performance of the stocks and worry about it. It’s just not worth your time and energy. I would focus on other things. So big picture really here is, you know, I, I want to go back to what, um, uh, 1973 economists said, one’s from Princeton university. His name was, uh, Burton, Malkiel. I hope I’m pronouncing his name.

Right. But essentially Burton said that, um, a blindfolded monkey throwing darts at the stock listings to do as well as an investment professional. Right. So just keep that in mind.

Roy – The Business of Business Podcast(00:14:48):

Well, I, uh, one of my finance professors, and I love to tell the story because he, he was a maniac. I mean, he, finance was his life. And, uh, this was back in the day before we actually had, you know, air conditioning, all the classes.

So, you know, it, you ha I took a summer class with them. The windows are open, it’s hot, he’s in a dress shirt. He sweated this dress shirt through to where he’s just soaking wet. Chalk dust is flying, you know, he’s up against the boards. So when he gets out of this class, he is just, he’s a mess.

He looks like pig pin from the Charlie Brown, you know, with this ch cloud, the chalk dust around. And so, you know, one of his favorite sayings was that bears can make money. Bulls can make money, but hogs get slaughtered.

Roy – The Business of Business Podcast(00:15:34):

And, you know, kind of the point of that is, is that you are not going to be able to pick it at its lowest low, or you’re not going to be able to get it out, get out from under it at the highest of the highs you just can’t.

So you’ve got to find other strategies because information in this business is key. And, but believe me, but time you, as a general public get information, it’s old in, uh, investment terms. I mean, you know, if it’s more than five seconds, it’s old news and somebody has already, you know, had, uh, nowadays with the computer trading, somebody is already traded off of it and you’re going to be left holding the bag.

So, uh, definitely get in there and, you know, find some good, like you said, a good index fund and just make, put it on that autopilot, just invest in it. A nice thing is, you know, they do the rebalancing for you when that’s all necessary. You don’t even have to think about that.

The Millennial Money Woman (00:16:32):

That’s right. Yeah. It’s it’s so hands-off, you know, just, just staying in the stock market, sticking to your plan. Um, it it’s just so much more beneficial than if you were to pull money out.

Like, for example, um, I, I was talking to a client, uh, probably a few months ago back in March. That’s right back in March of 2020 when we had, uh, you know, those, the stock markets down, right. Oh my gosh. Right. Hair was flying. It was just crazy, obviously, especially for almost retirees, right?

I mean, if you’re late fifties, early sixties, or getting ready to retire, and all of a sudden you see your stock, your portfolio just plummet by, you know, 10, 20, 30%, depending on how you are allocated, that can be like a heart in your mouth type of moment.

And, uh, it was interesting because there were a few clients who were on the, on the ledge and they were calling up and they’re like, sell, sell everything.

The Millennial Money Woman (00:17:25):

I’m not going to stand this, but you know, at that moment, you’re already in the negative, right? I mean, you don’t want to lock in those losses. Chances are at least historically speaking, the stock market has always rebounded after a drop. So we’re going to try to stick the course, stick to the plan.

And that’s kind of what, you know, younger folks or, you know, those entrepreneurs out there that are to this podcast. That’s what I think you guys should do too. Or at least consider doing is just sticking your course, even if it goes down, you know, a day, a month, a week, a year, possibly you stick to your course and keep buying stick to that plan.

Roy – The Business of Business Podcast(00:18:03):

Yeah. And I wished I had the, I wish I had pulled this up. I didn’t, but you know, we had talked a little bit about one example that we used to have was the, uh, they’re two sisters that I guess they were twins. So at the same age, one of them gets out of college, immediately starts investing, putting a little bit back 401k.

The other one, she was, uh, you know, kind of the party girl. She was out traveling and buying this and doing that. So as I go through time, uh, the, the one that’s been investing, I think she like around 32, 34, somewhere in there, she decides to settle down and have a family quits investing altogether, never does anymore.

The other girl waits till she’s like 34 35, finally settles down and begins investing. And I think the moral of the story is at age 65, they both have the same amount of money available to them. So again, the moral of the story it’s, uh, with, uh, the time value of money, getting into it earlier and, and doing something, even if it’s not as much as you want doing very minimal amounts will add up, you know, over 40 or 50 years

The Millennial Money Woman (00:19:22):

Well said. Yep. I know the example that you’re talking about, and that is 100% true earlier, the better.

Roy – The Business of Business Podcast(00:19:29):

Yeah. Because I used to deal with, you know, people my age, even at that time as like, well, you know, I’m gonna get to this investing, but, you know, uh, just, uh, not right today. And then about a week later, I get a phone call,

Hey, I just got this new boat. You want to go out to the Lake, go for a boat ride. I’m like, yeah, well that good money could have been going in your savings here. And, uh, you know, it’s, it’s always tomorrow, tomorrow, tomorrow. We want the fun stuff today and we want to kick that investment down the road, but it’s so important to start young.

There’s a lot of good things you can do to teach your kids that we used to have a, um, we got like a Tupperware plate that had three, it was divided into three compartments. So we would, you know, if they got money for stuff, we would always have them do, they’re spending money, they’re tiling to the church and then, uh, their savings.

You know, try to instill that, that, you know, money has to have value even from being a young child is very important.

The Millennial Money Woman (00:20:31):

That’s absolutely right. I mean, especially the younger they are and the more they, you know, the parents are able to instill those investing values. It’s really a positive impact on the child’s. Um, overall I think financial sense.

And there’s actually a website when I was young. I want to say I was about 13 years old. I entered this investment competition with the vice principal of my middle school. Wow. I mean, it was fake money, but it was this website called how the market works.com. And, um, so the, I just pulled it up and it’s, it’s an awesome stock market game. It’s completely free.

Um, and basically kids, you know, are able to be exposed to how you type in a ticker symbol, how a portfolio online looks like what, uh, the information is that you’re going to be looking at when you look at a company online, like you can, you can look where the buy button is where the sell button is, like all of those buttons there in this game.

The Millennial Money Woman (00:21:31):

And it was so, so, so beneficial for me. Um, when I first started out, I mean, like we were given, you know, I think it was $100,000 of fund money to invest. And, but, you know, you want to be able to teach your kids what actually is an investment account.

How does it look like? Uh, and this was a really cool start for, for my growth. And I’ve seen other clients use this for their kids as well. And it’s super helpful, even if they just spend like 10 minutes on it a day. Um, it’s definitely worth it. And for the record, for those of you who are wondering, I did win the investments and he gave me a free Sunday. I screamed. So that was my reward. So, yeah,

Roy – The Business of Business Podcast(00:22:12):

Thing to, I guess that would be good to talk about now, um, before we move on to the vehicles, is the fees, because, you know, back in the old days, man, you, you got clipped 5% just about anywhere you went, but now there are a lot of options, but there are a lot of hidden fees as well.

So we need to talk about, you know, there’s upfront fees, there’s the back end loads. And then there is the maintenance fee that you pay every year. So you don’t have to kind of address those just a little bit.

The Millennial Money Woman (00:22:44):

Yeah. I’d love to, and I think this is something that a lot of people actually don’t really understand. Um, and you know, it all starts out. And honestly, I didn’t know about this either. Um, I, I really like focusing on, what’s known as an expense ratio, right?

So this is, um, essentially a type of fee that you see and whatever fund you decide to buy. And it’s, it’s basically designed to measure how much of an investment funds assets are attributed toward various expenses. So in plain English, that means, you know, an expense ratio essentially refers to how much of your invested money will be going toward the investment funds expenses versus how much of your money will actually stay invested in continuing to grow.

Um, so to show you a little bit of oversight, there’s this website called Morningstar. Um, I use it myself very often, um, and it actually provides a really good overview visually too, for those of you who are visual earners, as it relates to how much a fund actually costs.

The Millennial Money Woman (00:23:48):

And that cost again is known as an expense ratio. A lot of funds are, um, I’ve seen funds probably 1%, two all the way, 3% cost that’s a lot. Okay. There are funds out there, however that are very low in terms of expense ratios, we’re talking 0.03%. That’s also known as three basis points or 0.05%, five basis points.

That’s very inexpensive. Um, the lower your expense ratio is the less money that you are investing is actually going to that fund or going to that, um, mutual fund, whatever you’re invested in that means more of your money actually stays with you and is being invested. Um, there are companies out there like Vanguard, for example, um, and fidelity too. I mean, there are many companies out there. You just have to do your research, but Vanguard’s the first one that comes to my mind and their expense ratios are actually very, very cheap.

The Millennial Money Woman (00:24:48):

They’re inexpensive. Um, and the reason why I bring this up and I have this conversation a lot with the clients that I mentor, um, is that if you pay attention to your investment or to your expense ratios, over 30 years of consistently investing in the same product and expense ratio difference of just 0.5%.

So that’s half a percent 50 basis points or more can make a difference of over $1 million in your pocket in that time frame. So it’s 30 years. It’s, it’s exactly, it’s enormous. You’re literally, you’re looking at the investments you have in your portfolio after you listened to this podcast, take a look at those expense ratios, right? So if you see something for 1.5%, try to look in the stock market or in the account that you have available to you in the funds that are.

That you can invest in and see if you can find something cheaper, because again, over three decades, 30 years, if you reduce that by just half a percentage point, you are going to be putting over a million dollars in your pocket. It’s so important to be cognizant of this. And I think not that many people unfortunately know about this, and I think this is one of the biggest kept secrets out there.

Roy – The Business of Business Podcast(00:26:01):

Yeah. And, and the other thing is you have to be careful, you know, when you’re working with the advisors, because you always have to think about how they get paid. I mean, they, they, they do that because they can make money at it. And you know, it shouldn’t be a secret. Um, nothing is free, but also, you know, look at the commissions that you are charged through your brokerage because, uh, there are some hand I hate to run it down.

But, you know, there are some investments that carry very, very high fees on them. That the reason that they carry those is because the broker gets most of that. So you kind of have, it’s very, very important to look at that and not just take somebody’s word that this is the best Avenue for you, especially if you don’t know him that well, always get that expense ratio just to make sure.

The Millennial Money Woman (00:26:53):

Yeah. You make a great point, Roy. I mean, I’ve seen so many times when clients come over and they show me their actual investment portfolio, and I look into the individual stocks that are in this portfolio, um, or mutual funds, whatever it is. I oftentimes those advisors that are, um, living off of a commission, right?

So again, a commission is they make a percentage of whatever you invest or whatever that is. However, that commission structure is you’ll likely see a lot of your investments will be in their, uh, their company’s funds, right? So there is, you know, company a that that’s where you are with your advisor and company, a actually manages a couple of funds like company, a index fund company, a et cetera fund chances are a lot of your investments will be in those funds. And that means more money for them, right.

The Millennial Money Woman (00:27:44):

Higher permission. So just take a look through your investment portfolio, make sure that what’s what you are invested in is not just suitable for you, but it is actually the exact fit for you. And this brings us to the next topic, which I think is really important to know that, you know, you want to make sure you are with an advisor, um, or a manager that is a fiduciary, right?

Fiduciary is someone that, um, truly by law. So they are governed by law to do whatever is in your best interest. That means if there is investment a and investment B investment, a there’s, they’re very similar, but investment Amiens that advisor would get a small commission, but investment B is a little bit better for you.

They would have to, by law, put you in investment B, that means no commission for the advisor, but you would be getting that better, uh, investment for your personal situation. So, you know, just to make sure that you really understand, um, everything the entire picture before you go to an investment advisor and financially commit.

I’m not saying that investment advisors who are not fiduciaries are bad chances are they probably aren’t, they’re probably very good, but just make sure you do your due diligence before financially committing. Right.

Roy – The Business of Business Podcast(00:29:02):

Right. Exactly. Well, so let’s talk for a minute about, um, let’s get back to our small businesses and, um, some of the vehicles that, you know, we had talked about the, uh, that they can use if they don’t have, you know, they’re not big enough to have access to a 401k. There are some other ways that you can, uh, shield some of your money from too high of taxes.

The Millennial Money Woman (00:29:32):

Definitely. Yeah. So, um, I’m definitely happy to talk about these, uh, employment plans. And specifically, I looked up a list here. I have a in front of me and there are four, you know, your every day, um, entrepreneur, but I also have at the end of the conversation, I’d love to go into depth also for those who perhaps are earning a little bit more, you know, those middle aged folks.

We’re talking 40, 50, 60 years old that are earning actually, um, a pretty substantial sum because they’ve had their business for a very long time and they are successful. But let’s start out with the S the smaller, um, self-employment plans for the newer, um, entrepreneurs. So there are a couple of ones out there, and there are so many to choose from.

I’ll try to boil it down into just a few options though, before we actually go into the self-employment plans, obviously I want to rephrase that there is your everyday traditional IRA, right?

The Millennial Money Woman (00:30:29):

And that’s about that’s $6,000 of contributions you can do if you’re under 57,000, if you’re over 50 or older, um, and then there’s your Roth IRA. Anyone can contribute to these. Um, you can be employed. You, you can be self-employed, you know, as long as you have earned income, you can contribute to these.

Um, however, if you want to move on to larger plans, and let’s say you have more income and want to be able to take advantage that tax advantage and can move more or than that six or $7,000 contribution limit annually for the traditional or Roth IRA, then there are several other options and I’ll start from smallest to largest.

So the smallest option is actually going to be your simple IRA or your simple 401k. Um, so let me explain a little bit about that. So a simple IRA, um, it stands short for savings, incentive match plan for employees.

The Millennial Money Woman (00:31:26):

And what that means is you can essentially, as the employer contribute 13,500 bucks to your, to, to your plan, um, it’s, it’s really good for, you know, businesses with less than 15 employees.

If you have more than 15 employees, you probably want to take a look at your 401k plan. Um, and it’s also good for employers who want to contribute between 6,000 to 25,000 per year. Otherwise you, if it’s less than 6,000, if you want to contribute less than 6,000, you want to go to your regular IRA, right?

Why set up a simple plan? Um, if it’s more than 25,000, you might want to look at other options that are like a step IRA, for example. Um, but simple IRAs they’re literally like traditional IRAs. They’re, they’re very similar. Um, they’re very easy to set up just like the name says simple IRA.

The Millennial Money Woman (00:32:19):

Um, there, there are tax advantages for the employers because the contributions they’re considered as a deduction as a business expense. Um, and then employees can also contribute. And I think that’s important to know simple IRAs.

They’re good for both employer and employee contributions. Um, so the only thing is that these contributions, they are lower, right? Like I said, so 13,500. Um, and if you are aged 50 year old over, um, employees can also contribute 3000 in addition to that. So it’s, it’s very small. It’s not that much. However, the employer can contribute, um, 3% of annual salary for employees.

If the employer wants to, there are a lot of other tax codes that go into it, and I don’t want to go all that in depth. However, this is a plan for, like I said, businesses with less than 15 employees and business owners that have a little bit of excess income and want to contribute to their employees, uh, retirement plans.

The Millennial Money Woman (00:33:19):

Um, so this is a really good option. I’ve seen a couple of them, uh, clients use the simple IRA. Uh, not that many, a lot of people actually opt for the SEP IRA, which we can go into next.

But, um, I do want to mention, and for this out there, there is also such thing as a simple 401k, um, and that simple 401k essentially combines what a 401k is with a simple IRA. So in other words, the contribution limit is the same 13,500 for 2020. Um, it’s, it’s much more simple to set up less administration costs, et cetera. So it just combines the features of a 401k. So cool.

Roy – The Business of Business Podcast(00:33:57):

Yeah. Yeah. And I don’t know which one, it may be the set, but the other, the other thing is very important to sit down and have this conversation about your individual situation, because I know one of these plans it’s, it was like you had, if you took one out for yourself as the business owner, you had to do equal amounts for every employee.

And sometimes people didn’t think about that and it kinda got them in a little trouble. So, um, uh, um, taking it that still a rule. Do you know which one I’m thinking about?

The Millennial Money Woman (00:34:32):

I do. Yeah. I’m you’re you’re one step ahead of me.

Roy – The Business of Business Podcast(00:34:36):

Okay, good, good, good. No, that’s fine. I did. I knew it was one, but I couldn’t remember if it was the sup or not, but I’ll let you go ahead

The Millennial Money Woman (00:34:43):

Now. You’re absolutely right. Yes. It is a step to confirm that. So a SEP IRA for those of you guys who are wondering, you can actually contribute up to 57,000 bucks into a SEP IRA, which is pretty neat. However, like Robin was saying, um, one of the downsides to ACEP is that you would have to contribute.

So let’s say you’re the employer, right? You’re the business owner and you earn a hundred thousand bucks and you want to put in $10,000 into your SEP IRA, that’s 10% of your salary. So that means if you have other employees working under you, you’ll also have to put in 10% of their salary. Right.

So the same percentage of salary for all employees. So absolutely right. Great points. Yeah. Um, basically for a SEP IRA, um, there, there are a couple of things. So first of all, your contribution as employer, right, can’t exceed or cannot exceed the lesser of 25% of your income.

The Millennial Money Woman (00:35:44):

So up to $285,000, what that means is if you earn a million dollars, you can’t contribute 250,000 into it, right? If you can, it’s only considered up to 285,000.

You can, that’s the maximum, um, where you, where it’s 57,000 that’s. So it’s the lesser of the two, right? 25% of your total compensation or $57,000 for 2020 downside. This is a big downside for step IRAs. You can’t contribute an age, 50 catch-up contribution. So typically speaking, it’s 50 catch-up contributions there. I want to say it’s like 6,000 or 6,500, something like that for 2020.

And we’ll go into that into the solo 401k later on. But, um, the SEP IRA, the maximum you can put in, um, is going to be 57,000, right. And that’s without age 50 catch-ups. So that’s kind of a downside. Um, but yeah, I mean, other than that stuff, IRAs, they’re very simple to set up contributions, they’re tax deductible.

The Millennial Money Woman (00:36:47):

So they’re kind of like a traditional IRA, right? Whatever you put in that’s deducted from your tax returns, um, the, you know, typically these plans, they’re actually good for companies with less than 10 employees. So again, if you have a small business, this might be something that you want to contribute.

Again, just keep in mind that, um, if you’re the employer, you will have to contribute the same to the employee plans. And this brings us to the next point, employees cannot contribute. So it might be good for the employer, right? Because you get to control how much it goes into those plans, but the employee, maybe not the best because they cannot contribute, um, to their plan.

The one thing I do want to say is that, um, you know, if let’s say you do contribute more than the annual limits, because each year the annual limits change, typically they adjust upward due to cost of living adjustments.

The Millennial Money Woman (00:37:41):

You’ll have to correct that mistake. And the IRS goes into many, many ways to correct that mistake, but I just want to make sure you guys know if there is, if you do contribute more than what’s actually acceptable into your step plan, you’ll have to make that correction and just make sure you consult your CPA or accountant.

Um, but otherwise these are really good plans. And the cool thing is you do not have to commit to contributing every year to these plans, right? Um, there are other plans out there, right? Like for example, defined contribution plan, you’re going to have to contribute every single year. This one would not have to. Um, and they’re also much less complicated than setting up a 401k.

The administration fees are much less. So overall the SEP IRA is one that I’ve seen many business owners use. Um, there are a lot more common than simple IRAs because SAPs have that higher contribution limits than simple IRAs.

The Millennial Money Woman (00:38:37):

Um, and SEPs are also very easy to manage. They have similar rollover R and D requirements, which are requirement required, minimum distributions as your just regular IRA. Right? So it’s very easy, um, very simple rules.

And I would suggest to definitely look into this. If you think that, you know, your business is small, you do want to contribute more money. Um, like let’s say 30,000 or more to your retirement plan. This might be the right choice for you. Um, just make sure that, you know, you keep in mind those inflation adjustments because typically every year, your con your maximum contribution limit does increase by 500 or a thousand bucks.

But otherwise, yeah, it’s a fantastic plan. Um, just make sure that you form this, uh, on the due date of whatever your employer’s tax returns. So that means if you’re a sole proprietor and you’re thinking about forming a SEP IRA that has to be formed, opened, and typically contributed by April 15th, if you’re an LLC or an S-corp make sure that’s open to in time too, which I think is March 16.

The Millennial Money Woman (00:39:48):

So just make sure you consult your accountant in those cases. Okay, great. The next plan is a solo 401k. And this one I’ve seen very often used actually, um, as much as the SEP IRA, essentially solo 401ks are a neat tool because in addition to, uh, so like I said, a does not allow age 50 or older catch-up contributions.

This is the difference in a solo 401k. You are allowed age 50 catch-up contribution. So essentially the maximum that you can contribute to a solo 401k is, uh, I think for 20, 20, $63,000. So it’s not that, um, the, the limits are much higher, that it will, they are higher than the sup. However, here’s the thing, 401ks. They typically are a little bit more complicated to set up than IRAs. There’s a lot more administrative work that goes into it. Um, you’ll have basically expenses that they’re servicing expenses, right?

The Millennial Money Woman (00:40:51):

So you have a plan administrator that administers your 401k and every year you’ll probably have to pay them a little bit. That could be depending on the plan provider, 500 bucks or a couple of thousand dollars. It just depends on who you hire to actually administer your 401k. Here’s the thing, a solo 401k is only for one business owner, and there is one exception which I’ll go into later.

So if you are your own person, if you are a freelancer, for example, that earns a lot of money and you need retirement contributions, and it’s just you, this could be the plan for you. Again, because it’s just one person that’s allowed in ACEP, you could have multiple people working under you. Um, the exception that I was referring to earlier is let’s say you have a partner and you’re married, right? So it’s husband, wife, whatever.

The Millennial Money Woman (00:41:43):

Um, you can actually have, if your, if your partner works with you in your business, you could add that partner to your solo 401k plan. So both of them spend wife, right? Yeah, exactly.

So both married partners, they could be contributing to a solo 401k that’s accepted. So you could have two people as long as they’re married, contributing to a 401k. And, um, I actually had a client. He, uh, does, I want to say does like furniture. Um, but he like models the furniture for major hotels, but that’s his business. Um, and he and his wife worked together.

She’s kind of like the back office, like she does the paperwork and that stuff. And he actually goes into the hotels and he kind of like models the furniture there for the hotel rooms and the lobbies and all, and they’re on a solo 401k plan.

The Millennial Money Woman (00:42:34):

So it works well. They earn enough money where both of them can actually max out that top contribution 57 or I’m sorry, $63,000 age, 50 and up contribution. So it’s super good. Um, again, for people that are just by themselves employed or have husband and wife employed.

Okay, great. So now comes kind of the cool thing I was thinking. I’m like, what I like, I’m so excited about that. Okay. Um, so this is for people that maybe are in their forties or fifties or early sixties, and they have already established themselves in the industry. Um, they’re earning a lot of money in their business and they are thinking, what can I do to maximize my retirement contributions and tax advantage?

What can I do right now? Well, the answer in this case is let’s say you’re earning a million dollars. You’re earning, um, I don’t know, you’re earning 2 million, 3 million, whatever it is, and you don’t know how to best optimize your savings, your retirement savings, one option for you could be the defined benefit plan.

The Millennial Money Woman (00:43:46):

Um, and the defined benefit plan specifically can help older owners of highly profitable businesses. You know, squeeze basically 20 years of savings into 10 years, um, defined benefit plans. They’re very similar to pension plans, uh, and honestly defined benefit plans.

You don’t throw them much anymore because they’ve been basically replaced by 401k plans. Uh, and for the right small businesses, a defined benefit plan might be the right choice that provides you with the largest retirement contribution and actually the most tax savings possible. Um, so just a little bit of an overview of defined benefit plans.

They are a hundred percent funded by the required annual employer investments. The here’s the caveat though, there is no, uh, maximum annual contribution limit by the IRS. The maximum annual contribution limit is actually set forth and determined by an actuary. Um, so actuaries, you hired them, they assess your business, they assess your age, they assess multiple factors.

The Millennial Money Woman (00:44:53):

They then themselves determine how much the employer you would have to contribute to this defined benefit plan. Um, so that actually said when I hear actuary, that means money. So as you can kind of tell, defined benefit plans, they have a lot of administration costs associated with them, right?

You will have to, I mean, there’s lots of maintenance, maintenance costs. There’s a lot of money that actually goes into maintaining one. However, it can allow you or far higher contributions than 401ks. So we’re actually talking $250,000 in one year, right? Like we’re talking a hundred, the six finger contributions easily per year. Um, and this is extremely beneficial for those that maybe haven’t had the chance.

So if my grandparents were listening, right, I would tell them, possibly consider this because they can sock away so much more money, um, into a defined benefit plan, especially in later years when you’re earning more money and still get that tax advantage, because it will be tax deductible, um, and employers and the employers can actually claim a tax credit for the plan startup costs in the first three years, just because it is so expensive.

The Millennial Money Woman (00:46:02):

So, you know, overall, it’s, it’s a really cool plan to consider, um, contributing money. We actually had a client who was a social media star, believe it or not. I mean on social media. Yeah. I know, right out of all the clients like this guy was I think, 40 or 50 years old, um, super successful on social media earning probably four to 5 million a year.

Wow. Um, but didn’t, I know, but didn’t have a retirement plan in place. And, uh, we actually ended up recommending a defined benefit plan tier just sock away as much cash as possible and still get that tax deduction. And that’s what they ended up doing. Um, and quite frankly, it works, but you have to make sure that you are the right business that it works for. Right. Um, so this is one of the last plans. And again, this really works.

The Millennial Money Woman (00:46:48):

If you have a lot of disposable income, which means you have that cash to put away into retirement plans, but those are kind of the big overviews. I’m happy to go into more depth like taxes and all that, but generally speaking, um, you know, the best plans, if you’re self-employed, uh, is, you know, your, your simple IRA, which is a smaller contribution limit than others, uh, 13,500, the next step is your SEP IRA, which has a limit of 57,000.

No, no catch-up contributions. Then the next step is the solo 401k, where you do have catch-up contributions if you’re 50 or older. So that means you can easily contribute up to 63,000 or more depending on the year. Um, the next step up from there would probably be that defined benefit plan where you can contribute six figures, um, easily into that plan per year. Okay.

Roy – The Business of Business Podcast(00:47:42):

And, um, you know, I hope I’m not misspeaking here, but, uh, w when we want to relate these back also to your grandparents just a little bit and say, if I’m not mistaken, since these are, uh, retirement accounts and they are set aside basically in the person’s name.

I think that adds a little bit of protection if I’m not wrong, doesn’t it that if you have been putting your money away in a, in a protect in a, uh, let’s just take a sip, you put your money back in a CEP, and then let’s say something happens. You either get sick, your business goes under whatever that money is protected against your, I guess, your creditors coming after. Is that correct?

The Millennial Money Woman (00:48:26):

That is correct. Yes. So retirement accounts and funds in general, they are actually protected from creditors. Okay. Um, most plans like 401ks, for example, um, they are protected. You do want to be careful though, because there’s, there’s this thing called ARESA, um, which basically Mo it’s, it’s known as the employee retirement income security act.

In other words, they it’s an organization, um, that w that monitors to make sure that you follow compliance rules, right? So you contribute that in a step IRA. If you contribute 10% and you have employees working under you, that you also contribute 10% of them, um, based on their salary.

So if you don’t follow those rules, chances are, if you do have creditors that might get into a little bit of a conundrum, but, um, as long as you have an ERISA plan that falls under those guidelines, right, then chances are, they are, well, not chances are, they are protected from creditors, non RSL plans like Roth IRAs.

The Millennial Money Woman (00:49:30):

Um, they do not have that same level of creditor protection. So that’s very important to distinguish and even more so, like, if you have a sole proprietorship, right? So if it’s in your own name, in other words, the tax, like whatever income you make from your business flows directly to your income tax return, um, you have a much higher probability of being, um, kind of ousted to creditors.

If there is, you know, bankruptcy or anything like that, or even Sue, like if someone’s suing you, that could be a possibility. So honestly, I would suggest if you are earning money from a business, and you’re a sole proprietor, try to consider doing, um, a dual member LLC, or even an, an S-corp is a little bit more complicated, but something to help you help add that creditor protection.

Um, and the reason why I say dual member LLC, is because typically speaking, dual member, LLC, is they have more protection against creditors than single member LLC is. And I didn’t know that at first either, but I was talking to an accountant and they actually verified that for me. And I was really surprised to hear it, but yeah. So just make sure you take those extra steps for, um, for predator protection. Definitely a great point.

Roy – The Business of Business Podcast(00:50:43):

Yeah. I think, you know, you, I think if you follow the rules and do what you’re supposed to, cause, you know, there’s all kinds of examples of people that try to hide money in these.

Of course, you’re not going to get away with that, but I think it just, not only your grandparent’s story, but also this pandemic, there’ve been so many people that, uh, you know, prior to 2020, we’re rocking long, small business life is good.

Then now all of a sudden they’ve lost their income, they’ve lost their business. And if you would just think if you had been putting some money away in ACEP for, you know, 10, 20 years, you would at least have a little bit of, uh, of cushion. You know, my, some people maybe have even retired through all of this. So anyway, it’s just very important to get started and do it early.

Roy – The Business of Business Podcast(00:51:29):

My advice. And I thank you at second, this is seek out licensed professionals to help you in all of these steps to make sure that you’re following the guidelines because, you know, just like myself, I, you know, I have a finance degree and I could probably do my own taxes and be pretty good.

But I don’t because they send out tax bulletins to these tax professionals all the time throughout the year, it’s a constant learning process. And so, you know, as the same with investment advisors seek out last and professionals, because there’s always changes going on with these accounts and they can help walk you through to make sure that you’re doing everything that you should be doing to keep you out of trouble later on.

The Millennial Money Woman (00:52:16):

Yeah. You make a really, really good point. And I just want to, you know, back, back that up and echo what you said, Roy, I mean, the fact again, although I do have like you, um, my certifications and all, but I don’t have my taxes. I don’t do my own taxes.

Not at all. I have an accountant do my taxes. I do not manage my own investment accounts. Um, because it’s funny, actually I read the statistics somewhere that, um, if you’re an investment manager, for example, or a financial planner or accountant, chances are you do your own taxes, your own investment planning, financial planning, worse than you do for your clients because we have that bias, right?

Because it’s our own money. We need that third party view. We need that unbiased third party professional. And that’s why Roy, what you said is so true, like make sure you seek out the people, the right professionals, the accredited ones, even if you are really specialized in an area, chances are, it’s probably better for you. If you find someone else to help you,

Roy – The Business of Business Podcast(00:53:19):

You just need to mess up, wants to, uh, to have all of what you’ve done, be evaporated. So that’s why it’s just not worth taking the chance. And you know, like my, my tax preparer, I know that she usually finds me more deductions because she’s up on the law.

Then why I would know, you know, trying to go through one of these computerized, uh, tax generating, things that you go through, where they ask very generic questions because you know, each, each and every individual each and every business is really different, has its own aspects, its own needs, you know, whether you’re 20 and starting out or whether you’re 50 and getting close to the end and anybody in between.

So please again, you can’t, um, you can never go wrong by having great support staff around you, counter financial advisors, lawyers, you know, just seek out good, reputable people in those areas.

The Millennial Money Woman (00:54:19):

That’s right. I could not agree more.

Roy – The Business of Business Podcast(00:54:22):

Well, Fiona, I’m certainly glad that you taken time out of your day to be with us. This has been very interesting and I hope that we can get this message over to, you know, some of our smaller or solo preneurs entrepreneurs, small businesses, this is going to be so, um, so helpful for them, you know, when they get to the age where they want to retire.

And I know we don’t think about that a lot in our youth, but unfortunately it sneaks up on all of us one day you wake up and you’re 50 and wonder where all the time has gone. So get started when you’re young, don’t let us sneak up on you.

The Millennial Money Woman (00:54:58):

That’s exactly right. Roy. Don’t be like that client. I was talking to where she said her past is catching up start now. And even if it’s a little just start.

Roy – The Business of Business Podcast(00:55:07):

So what is a tool that you use in your daily life? Either professional, personal it’s a tool, habit ritual, just something that you do every day that you don’t think you could do without.

The Millennial Money Woman (00:55:19):

Definitely. It’s, it’s funny that you asked that because I was thinking about it earlier. Um, and it’s, it’s a habit that I learned. I want to say back when I was like 18 or 19 and, um, it is physically writing down goals.

And not just that I support example, I had a goal to graduate, um, college at the top of my class and I wrote that goal down. I stuck it onto my, um, mirror, my bathroom mirror. And every, every day, I mean probably three, four or five times a day or whatnot. I saw that note every single day.

Um, and I made that happen. And not only that, you know, but other other goals that I, that I tried to set my mind to be short-term, but long-term, I write down sticky notes and I try to keep it to like four or five sticky notes.

The Millennial Money Woman (00:56:09):

Right. Um, put it on my bathroom mirror and I actually see those every single day. Um, and you know, some people might say it was a little bit overkill and, and I appreciate that.

That’s fine. But for me personally, I’m a visual learner. Um, and I understand myself, right. I know that I am visual and that’s the best way I’m able to accomplish whatever I want to accomplish. So knowing myself in that regard kind of led me to write down my goals and short sentences, put it on the mirror.

And because I see that every single day I’m reminded, I’m always constantly reminded. aAnd then being able to take off a sticky note and throw it into the trash because I accomplished that goal, Roy, Oh my gosh, it is the best feeling in the world because it’s like, I actually did it. Like I complish that. So yeah.

You know, it’s, it’s so funny because I don’t think that would be the first thing that most people would say, but writing down and visualizing goals and putting them in an area where you see them every day, be it on your nightstands, uh, on your car dashboard, you know, whatever it is that is so helpful and has been vital to help me accomplish some of the goals that I have.

Roy – The Business of Business Podcast(00:57:21):

No, that’s great. And I, you know, whether they say like, uh, a goal that’s not written down is just a dream or something like that. So, I mean, we’ve got to ride them down and I’m like, you, I like to keep, I use, uh, a lot of times three by five cards for my to do list.

And the other day I let out a big, Oh yeah. Who or scream or something. My girlfriend is like, what’s wrong. I just check something off my list. I mean, I get excited when you knock those things out, but, you know, I think to your point about your goals and your dreams and keeping them in front of you is that, you know, there are days that I personally wake up tired or not really feeling it, or maybe have a chance to go goof off or something like that.

And, you know, when you see that thing that you need to accomplish or want to accomplish, it can kind of, uh, kind of bring you into a refocus to be like, Hey, you know what, I’m so close to this. I need to really push through. Or, um, I think that can be very, very beneficial. So that’s all.

The Millennial Money Woman (00:58:18):

Absolutely. Thank you. Yeah. I’m glad to hear. I’m not the only ones.

Roy – The Business of Business Podcast(00:58:21):

No, no, I got, no, I got stuff written all over the place. I love that. Well, tell everybody how they can, um, get a hold of you or, you know, I know that you have a website with some information, so, um, just let everybody know how they can, uh, interact with you.

The Millennial Money Woman (00:58:40):

Yeah, definitely. So first and foremost, like you said, Roy, the website, um, anyone can reach me there. It’s themillennialmoneywoman.com. Uh, I, I write posts, uh, probably two to three times a week. And my, my email address is there. Themillennialmoneywoman@gmail.com. I love interacting and engaging.

So definitely reach out, um, get to know me. I’d love to hear from you. Uh, the second option is if you guys are a Twitter fan, uh, feel free to reach out to me on Twitter. And my handle is atthe_mmw. And if you guys are Pinterest lovers, then you can always reach out to me at the millennial woman on Pinterest, and I’m always happy to reach out and engage.

Roy – The Business of Business Podcast(00:59:25):

Awesome. Well, it’s been a great conversation again. Thank you so much. I’ll reach out and, uh, see what Fiona has to say. I know it’s a very enlightening and we appreciate your time very much. So that’ll be, that’ll be offered today.

Uh, again, this is the business of business podcast. You can find us@thebusinessofbusinesspodcast.com. We are also on Twitter, Instagram, Facebook. Uh, you can also find the podcast itself. You can either go to the website. I have a player that I put on there, or, um, iTunes, Google play, Stitcher, Pandora, and Spotify.

All of those, all the big platforms go there. Uh, I will also post all of, uh, Fiona’s information on the webpage as well with all the, all the ways that you can reach out and contact her. So again, thank you very much until next time. This is Roy take care.

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