Vol. 31 - Getting a Late Start Funding Retirement

In this conversation, we answer a listener's question. We discuss

• Funding retirement later in life

• Contributing to a 401k immediately or waiting for COVID to resolve

• Paying down debt when starting a new job

• Buying a house and using NACA (Neighborhood Assistance Corporation of America)

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TRANSCRIPT:

Naseema McElroy: [00:00:00] All right, Nurses on Fire. We are back with the beautiful Leisa Peterson, our Certified Financial Planner. And today we're going to be answering a listener question, and this is coming from somebody who dropped me a note in Instagram. And. We don't have a lot of information, but this is what they gave us.

So she is starting a new job. She's 49 with no retirement. She has $18,000 in student loan, debt of $5,500, personal loan and $2,000 in savings. She is wondering if she should start her 401k now or wait until COVID is over. And she's also wondering, should she buy a house in six months and she's considering using the NACA program.

And we'll talk about what that is later. So let's just jump in and just start talking about this person is 49 years old, almost 50. I'm starting a new job and one with no retirement. So let's go there first.

Leisa Peterson: [00:01:01] Yeah. So I think that that's the most important part of everything. That's been shared when someone doesn't have a retirement account, already in place by the time or 50, let's say you've got some work cut out for you, if you want to be able to retire in the future and not just be living on social security.

So, so those are the things that we're thinking about or kind of these assumptions that are going on in the back of our minds as we work through her. Case study if you will.

Naseema McElroy: [00:01:32] Yeah. So I think that, like kind of  hit hard to me because I, I think there's a lot of people in this position and they're kind of stuck like, well, I'm just kind of learning about my finances and I have made all these mistakes.

So like, What should I do now? And I think a lot of people just don't take it action because they're stuck on the fact that they haven't done anything up to this point. And, so I just want people who are in this situation to first give themselves a little bit of grace and say, okay, And forgive themselves so they can start moving forward because you can get stuck in that place where you don't take action because you haven't previously taken action and you're beating yourself up.

So stop, forgive yourself, give yourself grace and then promptly start investing into your retirement account. So the big question was, should she, she started this new job. Should she fund her 401k? What do you think Leisa.

Leisa Peterson: [00:02:31] So based on what she shared, I would say most definitely she should get started right away with the 401k program.

Sometimes there's a waiting period, sometimes not, but no matter what, sign up, fill out the paperwork, get it started and figure out how much money you can contribute while also working on paying down the debt that it looks like she's. Focused on paying down. it may not be right now. Like right now, there may be some exceptions because of COVID she mentioned that, but we don't want her waiting until COVID is over to start the 401k. We want her to take advantage of this, get that account started. It's amazing. Cause once you start. Considering yourself, a saver towards retirement. I just want you to feel this, you know, cause we're assuming she's listening to this.

You will never be able to say I have no retirement. Count again. Once you open this up, can you start? It's done now. You have one now granted it may not be as large as you'd like it to be, but yeah, you are on the path and that's what we want. You starting

Naseema McElroy: [00:03:37] with. Exactly. And I think a lot of the hesitation around getting started during COVID is like, one of the things we talked about in our first podcast episode is that people are scared to invest in the market during the down economy.

And I just wanted to remind you guys that, you know, The higher returns that you get with investing in the stock market is usually tied around like this, the fact that it's a risky, right? So the risk is kind of baked in. So unless you're planning on like, just retiring in a couple of years, I would say that, you know, that fear is, can that be, it can be mitigated a little bit.

I mean, even since we started this podcast, we saw that the market was low. The market has. I had gotten some crazy high returns. And so, yeah, it's very interesting right now, but, Assuming that you're still going to work for a couple of years, at least up to traditional retirement age. I think that it's still a good time to invest in general.

Leisa Peterson: [00:04:33] Yeah. Yeah.

Cause we're talking about a 20 in most cases, 20 plus years before you're even going to be touching that money. That is plenty of time to go up and down with the market. And you know, don't worry about that. Find something to invest in that, you know, you feel good with. You know, review what they have available and, definitely make sure that you are contributing enough to get the match.

Assuming, you know, something is being offered by the company and pay attention because sometimes during COVID people have reduced those amounts, but then they go back up and you'll get the option, but make sure you change things if you are only doing the minimum. So that would be the suggestion on that.

Naseema McElroy: [00:05:18] Yeah. That's a good thing to catch. Yeah.

Leisa Peterson: [00:05:21] The next thing was about paying down. I mean, she didn't really ask about paying down debt, but did you have any sense about that part?

Naseema McElroy: [00:05:29] Yeah, I think like she wanted to know what to do with like this $2,000 in savings because like, should she focus on her debt? I think that was my.

My interpretation. She did not necessarily ask that, but I think she brought that up as an issue because, you know, she does have a little bit of money and savings, but she still has debt. And so I think the question is okay, should I invest in my 401k? Should I focus on paying down this debt? And I think, you know, we talked a little bit yeah.

Offline and I think it depends right.

Leisa Peterson: [00:06:00] Yeah, it depends on how much money she's making. So if you're making $40,000 a year in a high cost area, or you're making 80 or a hundred thousand dollars in an area where that is a lot of money, then. You are going to have more flexibility on what your does are. So if there's also the other pieces, when you start a new job, sometimes you go through probationary periods where you might see yourself getting a raise in six months, or, you know, pay attention to all of those factors.

And what's the potential for what you're making now, what you might be making six months or one year from now, and you can adjust how you deal with that debt. I don't think there's anything wrong with it. Holding off a little bit of time. I would definitely not use that $2,000 in savings for paying down debt.

If you can, if you needed to, you know, get what are they parents or the delays on campus, she didn't mention if she's doing any of that right now, you know, pay attention to those options. But yeah. Don't pay the $2,000, keep that for a rainy day account.

Naseema McElroy: [00:07:07] It just depends on your level of income, but yeah. Do not touch that $2,000. Don't think that you have to aggresively pay it towards that you are in a transition period. So if anything, I would even look at beefing up that emergency at least to a couple of months of your expenses.

So if her expenses are like 3000 a month, you might consider beefing that up to $6,000 a month before, attacking those. That's let's make an assumption that her loans are federal loans and they're already on that forbearance. If they're not, she might have older loans look at, getting on a pay as you earn plan so that they do qualify for this forbeaance that's been going on.

Let's hope that she's done it already because that's already, we've been extended through December. and you know, so that's happened since what may, until. December. So that's a way to, have those, payments, not have any kind of interest or any penalty, while you're focusing on what the plan is.

And so, yeah, I think that, , debt. Right now during this time, which is uncertain is not one of the things that I would heavily focus on because it's not overwhelming to me. even if she's 40,000, if she makes $40,000 a year, it's still under a one-to-one ratio. So, you know, to me, I'm really concerned about her making sure that she's putting away something for retirement.

So, yeah, and we can move on to the next thing, which is buying a house. Like she wants to buy a house in the next six months. She's just started a new job. What advice would you have for her on that?

Leisa Peterson: [00:08:33] Yeah, so being cautious, I think is really important. When you first start a job, you want to make sure that fits for you. You, you like it, you're going to stay in it. And also that it's it's for your employer before you engage in kind of taking on a big debt load. Yeah. And, at the same time you were telling me more about the NACA program. And I think that's very interesting because it may take some time before that even came together.

Naseema McElroy: [00:08:59] Yeah. But I also wanted to say that I think, in America, you know, homeownership is like part of this American dream and, For most people being in a home, even if they are owning it. Yeah. Only represents like rent payments. Cause they never pay off those mortgages. And so I really want people to like stop and think like why they want to own a home and what the purpose of owning a home is.

And like, if it's even cost-effective to own a home and not wanting to buy a home, just because maybe you haven't had a home or you had a home when you lost it and it's a status symbol thing. So I just want to stop in like. Just check in on that and just make sure that you're really owning a home that is affordable for you.

That makes sense. And, always have this rule of thumb. never have your mortgage,  plus principal, whole interest taxes,  all that stuff combined be more than 30% of your take home pay that's your after tax pay.

And I think, that that's a general rule of them. So that's just something to think about. But yeah, let's talk about NACA. So  NACA  stands for neighborhood assistance corporation of America. And so what the, the philosophy of kind of NACA is, is that it's like re-inventing mortgage lending because it's like, Supposed to level the playing field. And it's eliminating barriers to home ownerships for low to moderate income families and minorities.

And, you know, we've talked about this extensively, how. You know, there has been historic, unfair lending practices, and this is the organization that was built to kind of mitigate that as part of that process, they do have some financial coaching and training and you have to submit budgets and all these kinds of things so that you can qualify.

So the process does take some time also, You are, even though there's no real income income caps, you are looked at as more favorable. I think you get like this, there's like a scoring system. If you do make a little bit less and then you buy a house in, Certain neighborhoods, neighborhoods that are kind of like opportunities zones, meaning that you will be one of the fewer homeowners in that neighborhood.

And so you'll be uplifting that neighborhood it's like, you know, trying to break that cycle of property in certain neighborhoods. And so that's what this program is about. The cool thing about this program is that they offer no down payment and really, really, really low interest rates. The interest rates are.

Far below market rates. And you even get the opportunity since you're not putting a down payment down to buy down these loans. Like I know people who have bought down their loans to like a 0.2, 5% interest rate.  I think these programs are great, but it is very bureaucratic.

I've heard that it, it can take a long time, but for some people I've heard that it was really, really fast and it's very, Depends on where you live. So, if you live, I think it works really, really well in the South and in the Midwest, where housing prices are a little bit lower and there's a little bit more inventory versus in California because , they do have caps on how much the loan amounts are.

And so in California, number one, it really works well if you're doing multifamily houses, but, They also have a lot of delays cause I have a little bit of turnover in their systems here. So those are the things that I've heard about the program. I've personally, I tried to actually try to do this program before, and it was just going to be a little bit too much for me for what it was worth.

And I couldn't really find a house. I qualified for it, but  for people who can stick through it, who can qualify for who's, who can find houses. I think that it's an incredible program. Yeah,

Leisa Peterson: [00:12:34] beautiful. So it's, it might even be something where yeah, you could look into it. You could learn more, you might start the process, but not necessarily select the property, get a feel for it.

I don't know that that hurts anybody, especially if it's a lot of stuff when you can just want to pace yourself. but it sounds pretty interesting. And I mean,  I'll say, cause we don't have to be exactly the same with the real estate stuff. Like. One thing that you made me think of, was always make sure that you know what you're going, what you would be paying for a comparable property with rent in comparison to what it's ultimately going to cost you.

Because if they're totally out of whack like that in and of itself might make it a not good decision, you know, NACA may make it so that the payment and everything included is quite affordable compared to rent. And in that situation, you have a low amount down and you're paying very similar to what you're going to pay in rent may be worthwhile, but if it's out of whack and you're paying a lot more, maybe not such a great idea.

Does that make sense?

Naseema McElroy: [00:13:46] Yeah, totally, totally. And I think that a lot of times people, don't factor in everything that is included when you're a homeowner, because you are responding for fixing everything and your maintenance and all these kinds of things. It's pretty darn expensive. I mean, just if you're taking out a loan.

Process in itself is really, really expensive typically. And I don't think people factor that in. And so there's things to consider. There's some awesome rent buy calculators that you can Google out there that do include those things. So I always encourage people to do that first, but, I just want to offer this listener, some encouragement and know that it sounds like, I mean, I know she reached out to me kind of like doom and gloom, but it's not all doom and gloom.

I think it's, exceptional that you recognize the position that you're in and you're ready to take action. And you're asking those questions and so kudos to you for that. And yeah, like what you said at least to like start that retirement. How could you can never say again that you don't have a retirement account?

Leisa Peterson: [00:14:49] This is great. I love this. Come on. You guys send us some more questions we want to dive in.

Naseema McElroy: [00:14:58] Yeah, no, I love the questions. All right. So you guys, if you have questions, make sure you send them to nursesonfirepodcast.com/ask. So we can make sure to get you on the podcast. All right, Leisa. Thanks. Thank you.

Thank you.

Hey there I’m Naseema

My dream is for everyone to know that financial independence is attainable with a little intentionality. Learn how I can help you finally break the cycle of living paycheck to paycheck.

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