Getting a Late Start Funding Retirement - Expert Edition Episode 27 (Classic Episode)

In this episode, our CFP Leisa Peterson and I discuss important financial decisions for individuals nearing retirement age with none or limited retirement savings. We explore the dilemma of whether to start a 401k or wait for a more stable economic period. We also touch on the significance of addressing existing debt while considering factors like income level, potential salary growth, and forbearance options. We then discuss homeownership while evaluating your motives and ensure affordability while potentially taking advantage of the NACA program, considering its potential advantages, low-interest rates, and opportunities for low to moderate-income households. We hope this episode encourages you to take action and prioritize long-term financial security.

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TRANSCRIPT:

[00:00:00] Naseema: All right, nurses on fire. We are back with the beautiful Lisa Peterson, our certified financial planner, and today we're gonna 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, a $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 starting a new job and one with no retirement. So let's go there first. Mm-hmm.

[00:00:59] Leisa: 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 you're 50, let's say you've got some more cut out for you if you want to be able to retire in the future and not just be living on social security.

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

[00:01:30] Naseema: Mm-hmm. Yeah, so I think that hit hard to me because I think there's a lot of people in this position and they're kind of stuck well, I'm just kind of learning about my finances and I have made all these mistakes.

So What should I do now? And I think a lot of people just don't take 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, she started this new job, should she fund her 401k?

What do you think, Lisa?

[00:02:25] Leisa: 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 cuz once you start. Considering yourself a saver towards retirement. I just want you to feel this. Cuz we're assuming she's listening to this, you will never be able to say, I have no retirement account again. Once you open this up and 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 you are on the path and that's what we

[00:03:30] Naseema: want you starting.

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 a 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 the, the, the fact that it's risky, right?

So the risk is kind of baked in. So unless you're planning on just retiring in a couple years I would say that, that fear can be mitigated a little bit. Even since we started this podcast, we saw that the market was low. The market has. Gotten some crazy high returns and so yeah, it's, it's very interesting right now.

But Assuming that you're still gonna work for a couple years, at least up to traditional retirement age. I think that it's still a good time to invest in general. Yeah.

[00:04:24] Leisa: Yeah. Because we're talking about 20, in most cases, 20 plus years before you're even gonna be touching that money. That is plenty of time to go up and down with the market and, don't worry about that.

Find something to invest in that, you feel good with. See, review what they have available and definitely make sure that you are contributing enough to get the match, assuming, something is being offered by the company. Right. 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. Yep. So that would be the suggestion on that.

[00:05:07] Naseema: Yeah, that's a good thing to catch. Yeah. The next thing was about

[00:05:11] Leisa: paying down. I mean, she didn't really ask about paying down debt, but did you have any sense

[00:05:16] Naseema: about that part? Yeah, I think like she wanted to know what to do with this $2,000 in savings because should she focus on her debt?

I think that was my, I. My interpretation, she did not necessarily ask that, but I think she brought that up as an issue because, she does have a little bit of money in 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, we talked a little bit offline and I think it depends right? Yeah, it depends

[00:05:47] Leisa: on how much money she's making. Yeah. 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 choices 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, 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. 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, get, what are they forbearance or the, the delays on payments, like she didn't mention if she's doing any of that right now, pay attention to those options, but, Don't pay the $2,000.

Keep that for a rainy day account. And yeah. And then, and then there was anything else that you wanted

[00:06:56] Naseema: to add on that? No, I think that that's good. Like it just depends on your level of income. But yeah, do not touch that $2,000. Don't think that you have to aggressively. Paid towards debt, you are in a transition period.

So if anything, I would even look at beefing up that emergency at least to a couple months of your expenses. So if her expenses are like 3000 a month, she might consider beefing that up to $6,000 a month before attacking those debts. 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 go getting on a pay as you earn plan so that they do qualify for this forbearance that's been going on. Let's hope that she's done it already, because that's already been extended through December. And 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, 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 makes $40,000 a year it's still under a one-to-one ratio. So, 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

[00:08:22] Leisa: that? Yeah, so being cautious I think is really important. When you first start a job, you wanna make sure that it fits for you, you like it, you're gonna stay in it. And also that it fits for your employer before you take on a big debt load.

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.

[00:08:47] Naseema: Yeah. But I also wanted to say that I think In America, home ownership is like part of this American dream and For most people being in a home, even if they are owning, it only represents like rent payments cuz they never pay off those mortgages.

And so I really want people to stop and think like why they wanna own a home and what the purpose of owning a home is. And 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 just, it's a status simple thing.

So I just wanna stop and 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 interest, taxes, all that stuff combined be less than 30% of your take home pay, that's your after tax pay. And I think that, that's a general rule of thumb. So that's just something to think about. But yeah, let's talk about naca. So it stands for Neighborhood Assistance Corporation of America. And so what the philosophy of KA of NACA is, is that it's like reinvented mortgage lending. Because it's supposed to level the playing field and it's eliminating barriers to home ownerships for low to moderate income families and minorities.

And we've talked about this extensively, how. 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 kind of things so that you can qualify.

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

It's trying to break that cycle of poverty 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 a 0.25% interest rate. So it's crazy. And so, right, like 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 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 multi-family houses.

But They also have a lot of delays cuz they 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 tried to do this program before and it was just gonna be a little bit too much for me for what it was worth.

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

[00:12:17] Leisa: Beautiful. Yeah, so it's, it might even be something where 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 just wanna pace yourself. But sounds pretty interesting. And I mean, I'll, I'll say cuz 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 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 outta whack, like that in and of itself might make it a not good decision. 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, you're gonna pay in rent may be worthwhile, but if it's outta whack and you're paying a lot more, maybe not such a great idea.

Does

[00:13:27] Naseema: that make sense? 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, cuz you are responsible for fixing everything and your maintenance and all these kind of things. It's pretty darn expensive. Mm-hmm. I mean, just if you're taking out a loan that.

Process in itself is really, really expensive typically, and I don't think people factor that in. And so just things to consider. There's some awesome rent by calculators that you can Google out there that do include those things. So I always encourage people to do that first. But I just wanna offer this listener some encouragement and know that it sounds like, I mean, I know she reached out to me kinda 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, l what you said, Lisa, start that retirement account cuz you can never say again that you don't have a retirement account.

Beautiful. Yeah. Anything else? That

[00:14:35] Leisa: is great. I love this. Come on, you guys send us some more questions.

[00:14:39] Naseema: We wanna dive in. I know. I love the questions. All right, Lisa. 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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