046 - Should You Open A Retirement Account, Brokerage Account, Or Both?

Is deciding which type of investing account to open holding you back? And what about the retirement options your employers has?

It can get confusing pretty fast. You've got Retirement and Non Retirement Accounts; Traditionals and Roths; 401(k)s and IRAs. 

So today we’ll look at the important aspects of each type and why you should pick one over another. 

Our strategy to set you up for success goes like this. 

Step 1: Get at least $1,000 into a savings account that yields at least 4%. Come back later and boost this up to 3-6 months of bare bones living expenses. 

• Sofi (get $25 if you sign up through our link and an extra $300 if you set up direct deposit) 
• Worthy (get a free $10 bond if you sign up through our link)
•  HYSA

 Step 2: Open a Roth IRA and commit to at least $100 a month. Unless your employer has a matching option, then contribute to their 401(k) only to their matching amount. 

Step 3: Open a non retirement brokerage account at a company that suits your needs. 

Then contribute monthly funds in an appropriate allocation to reach your goals. 

Example: If you plan to retire at 50 and have $400 per month to contribute, put $300 into your non retirement brokerage account and $100 into your Roth IRA every month. 

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**DISCLAIMER**
Ticker metrics change as markets and companies change, so always do your own research. The content in this podcast is based on personal experience and is for educational purposes, not financial advice. See full disclaimer here.

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Transcript

Welcome to Roaming Returns, a podcast about generating a passive income through investing, so that you don't have to wait till retirement to live your passions. Is deciding which type of brokerage account to open holding you back? And what about the retirement options your employer has? It can get confusing pretty fast. So today we'll look at the important aspects of each type and why you should pick one over another.
Let's shed some clarity so you can get started today. All right, guys, we are back. This is probably an episode we should have covered way back in the beginning, but yeah, should happen.
Yo. All right. So since this is an investing podcast, you're going to obviously need to have some form of brokerage account.
We did discuss like the best brokerages recently. Yes, we did. According to investors, and then we discussed the best brokerages according to Tim.
So go back and listen to that episode if you're interested in the nitty gritty. This episode is not going to cover that. This episode is going to be super important for your future.
So pretty much every one of those brokerage companies has the different kinds of brokerage accounts. So the two main options are whether you want a retirement account or a non-retirement account. It's pretty simple when you're in a brokerage, they'll ask you, do you want a brokerage or do you want a retirement account or a Roth account or a 401k account? Like it's like that's pretty it's pretty blatant whenever you're in a brokerage account.
It's a mandatory like question they ask when you're signing up for your actual account. So it's hard to miss it. But a lot of you probably will be like, well, which one do I want? Now unless you actually have an employer, you are really only open to whatever options they have through the contribution.
If you're having it directly taken out of your paycheck, employer complicates things. I'll discuss that a little bit later, but I'm just going to go over the general types right now. So the difference between a retirement account and a non-retirement account, the retirement accounts, you cannot access them, any money that's within them until you're 59 and a half without penalties.
They're set up that way because people will tap into their investments to pay for houses or cars or whatever. And they actually, they're the government's trying to make it so that you have money in your golden years so that you're not a suck on everyone else. Yeah.
Basically, I think they kind of know the social security system's going out the window. So they're trying to make. Well, there was just an article about social security, like current social security versus what social security is going to be like in five years.
It's between five and 10 years, social security is going to be 40% less. So you cannot rely on social security if you're doing that as a retirement option. You are a fool.
And I actually have a strategy to kind of supplement your own thing here towards the end when we get to that point. So then the other retirement account thing is the tax advantages. So for a non-retirement account, it's literally just the opposite.
You have access to your money whenever the hell you want, which means it's fully liquid. I mean, other than having to liquidate stocks, if you have it in stocks, and then you have no tax advantages. And if anything, if you're doing a lot of trade, you get that capital gains thing.
When you're doing a retirement account, it doesn't really matter how much you're trading. Ironically enough, this morning I was looking at taxes on dividends, and it's kind of simple but complex at the same time. Dividends are different than capital gains.
We're not going to get over that in this episode. But I'm just saying, the tax advantage in the retirement accounts is huge because it's like anywhere between 20% and 34% that you're getting taxed on your dividends depending on your income. Huge.
Okay. We have... Okay, so we're going to cover the retirement accounts first. This is her baby.
So she's going to talk more than normal. So yay. Yay.
Yay for you guys. You get to hear my squeaky voice. All right.
So there's a traditional type of retirement account and a Roth type of retirement account. I don't know why they call it traditional, but that's basically what they call it. I know why they call it traditional because everyone's a traditionalist in the world.
So they say, this is a traditional retirement account. And all the traditionalists are like, oh my God, I must have that. I think it was just because it was the original one that came out until they created the Roth option.
But... So all the traditionals are like, oh my God, I must have. Essentially. So for the traditional... Say this.
So for the traditional account, you pay no taxes up front, only on whenever you withdraw it. So if you withdraw early, you pay a penalty and the taxes. If you withdraw it after 59 and a half, you just pay the taxes.
Penalties are ginormous. So you got to make sure you don't touch your retirement account. When I got sick at the turnpike in retirement, I took my retirement, like it was damn near 40%.
But his was an extenuating circumstance because the problem with his account was that it wasn't going to grow at all, even if he left it sit. So we made the executive decision to withdraw it with penalty and invest the difference. But I'm just saying like the penalty was almost 40%.
It was like 38%. It was high. Yeah.
Whereas most places, if you leave the job or... You can roll it into something else. You can roll it into something else. And a lot of them allow you to keep it there and continue to invest it and continue to whatever it until that time.
The Pennsylvania turnpike said, no, if you leave it here, you're not going to grow. I was like, well, what's the point? Yeah, I thought that was crazy because that's a state... What's the point of leaving it here? Exactly. I mean, unless you read the thing wrong, but I don't think you did.
So basically the reason that somebody would want to pick a traditional account over a Roth option would be that because you're getting taxed later, you're investing more money in the upfront. And if you use the rule of compounding, you actually then get to grow that money faster because of the compound effect. But the other trade-off is that you really don't know how high taxes are going to be in the future.
So you do potentially have the problem of... And you don't know what your income bracket is going to be in the future. You don't... And so because the income bracket has a huge effect on how much you're taxed. So you could be making $130,000 in the future, whether it's in a side business or on a YouTube channel or plus your dividends.
So you could have a high income that would be taxed at a very high rate. So that's... And I think this is a hidden problem that most people don't think about because they're like, oh, well, I'm not going to take all my money out at one time or something along those lines. However, I actually just started looking into this for my mom because there's a rule with the traditional retirement account where once you hit the age of 70, you have to start making withdrawals from it.
So I think if you... I don't know. I haven't looked completely into it, but... It's a mandatory minimum withdrawal. But I don't know what the mandatory is.
So if you have added income or if you push over a certain bracket, you could potentially get hit with a lot more taxes unexpectedly. That option is not a problem with the Roth option. So then if we flip over to the Roth, for the Roth, you pay your taxes upfront, but you don't pay anything on your investment or any growth once you actually withdraw it, which is huge.
Because again, we just said we have no idea what the tax... Well, I can do a prime example of the differences here. When I work, my money comes out of my paycheck into a retirement account, so it's not taxed. Whenever I'm investing on my own, I take money out of my bank account, which has already went through the tax process, and I put it into a Roth.
That's the huge... Is that what you're getting at there? Yeah. That's what I'm getting at. Sorry if that was confusing.
Yeah. So if you take cash out of your bank account and you put it into a Roth, you've already paid, quote, taxes on it because it's in your bank account, so you've already been taxed on it. And as we said, again, the opposite of traditional is that you're kind of limited a little bit with the compounding because you're putting less money in because you're paying the taxes upfront.
And again, that kind of comes out in the wash if you have extra years and you contribute extra money. And the maximum you can contribute is much lower for a Roth than a traditional. It's not the Roth in traditional.
What? It's the 401k versus IRA. Because I'm saying like, because Roth, it's X, like you only pay so much in the Roth. So there's two different kinds of accounts and then there's two different kinds of actual- But what I'm saying is with the Roth, you can only put 7,000 in.
They have Roth 401ks and Roth IRAs. How much can you put in a traditional account? Traditional doesn't matter. It's 401k or IRA.
If you have a traditional 401k, it's 23,000. If you have a Roth 401k, it's 23,000. The difference is whether your employer offers it or not.
Jesus Christ, this is confusing. That's the problem. So you have the traditional.
I'm just talking about the traditional versus the Roth option right now. I'm just curious how much you can contribute. Give me a second.
Sorry. So with the Roth option, the one difference that makes this super interesting and really cool for the retirement accounts that is not available in any other means is that if you invest say $25,000 into your Roth and then stop contributing, if you hit a certain point later down the road where you need money, you can actually withdraw any money you invested, not the money you've grown without penalty in the Roth option, which is actually kind of cool. And if you set it up so that you're taking a loan from yourself and you pay it back, I think they have that option.
You kind of create this interesting situation where you're paying yourself interest versus paying a bank interest, which is kind of cool. They had an option like that with the TSP at the government. The TSP is interesting.
It's kind of like a hybrid between a 401k with a couple Roth options. Now, when I left, I think they actually offered Roth options on top of the regular traditional ones. The one caveat is not all employers offer the Roth option.
So it's possible you may have to open your own personal IRA, which we'll get into in the next section. But the thing with the Roth option, the Roth is not available for people who earn over $161,000 in a year. So that's one of the caveats.
So if you plan to make more money down the road, you can invest in your Roth now and let it compound, compound, compound, and never have to pay taxes on that amount. Definitely recommend getting a Roth set up to just take advantage of that tax aspect because that's phenomenal. And that's probably one of the reasons they're talking about getting rid of the Roth or potentially grandfathering it in.
I think Tim came across something. If I was a conspiracy theorist, I think they're getting rid of the Roth and the IRA will be after the Roth because it gives people too much freedom and the ability to make more money. I think people lose more money with more freedom because they don't understand.
I'm not sure the IRA would go away. But in the retirement accounts, all they normally do, and I'm pretty sure it's in the 80%. When people are in a retirement account, they literally just put it in an index fund and just that's all they do with it.
So they're making a shit ton of money because the index fund generates between 7% and 10% per year. So what happens is they're making a lot of money and the government can't have that. If I was a conspiracy theorist.
I think they're missing out on taxes. So I think that's why they're getting rid of the Roth option potentially in future. We keep hearing rumors until there's something conclusive, we're not going to do a dedicated episode for that.
Okay. So now that we understand what a traditional account is versus a Roth option, it's mainly the tax difference. Your traditional is taxes at withdrawal and the Roth is taxes upfront and then no taxes upon withdrawal.
So the main difference. If I was going to look at that from an income investing thing, if I was doing dividends stocks, I'd put it into a Roth because it's not taxed. And if I was doing growth, I'd probably put it in a Roth too.
I was going to say it wouldn't matter. I don't know why you put any money in the traditional. So the reason you will, and I'll reiterate this later, the reason that a lot of people will have a traditional account is because your employer only offers the traditional option.
Well, I don't see any benefits to traditional account. So the only time I would invest in a traditional is if I had employer matching because you're getting a hundred percent free money of whatever you're contributing up to a specific amount. That's when you go with the traditional option if it's the only option you have for that.
As income investors, you should be in something that's tax advantaged, like you don't pay taxes on it when you get it withdrawn. Yes, exactly. So now that we know what a traditional and Roth is, we have to differentiate between the 401k versus the IRA.
And a lot of people think that it's Roth IRA, but actually you can get a 401k Roth or an IRA Roth, a 401k traditional or an IRA traditional. And that's what Tim and I were just hash side commenting there for a hot second. It gets a little confusing.
So there's a difference between traditional and the Roth. And now there's the difference between the 401k versus the IRA. For the 401ks, these are the ones that employers typically offer because they're more simplistic.
They have limited investing options. They'll typically be the ones with the mutual funds and the index funds. They try to only give you like five or seven different options to try to not overcomplicate things.
It's probably costs less. It costs less for the employers to actually have it set up that way. Now the benefit of the 401k is that you have higher contribution limits.
You can put up to $23,000 a year into a 401k. That's insane. That's absolutely insane compared to the IRAs 7,000.
That's crazy. The one downside is that some employers, if you have a 401k, you can't move it out until you quit. Then when I worked for Turnpike, it was a 401k or it was a traditional of some sort.
It had to be because they, but the thing is that it's weird that they wouldn't have even let you, like even at the government with the TSP, they still allowed me to make different investments and change the allocations and things, but I couldn't make any new contributions to it. So that was the one caveat of leaving there. I basically was like, I don't like my limited options.
I'm rolling it out as soon as I quit. I'm putting it in the crypto. Yeah.
I'm not covering that. I'm not covering that here. So the IRA, it's a lower contribution limit.
I already just said $7,000 a year, which is like, that's three times less. Three times less for the IRA than a 401k. You have unlimited investing options.
Now this can be overwhelming to some people, but if you have a specific strategy, you know what you're doing. It's really actually very liberating that you can get into any weird stuff. You can get into foreign markets, futures, all sorts of different stuff.
Income investing stocks, because that's what we do. We income invest. Exactly.
I don't know how many options they actually have for that type of stuff in the 401ks. I don't think there's any. I think if I recall, it's literally just like an S&P and a NASDAQ and a Russell and an international and like a bond and a treasury and a future.
It's like it's very, very vanilla, very generic. Which isn't necessarily a bad thing if you're putting money in. You're putting money in is better than not putting money in, even if you have limited options, especially if they're going index route, like it's still better than nothing.
And if it keeps you from touching it early, if you're one of those people that like tends to spend within your accounts. Oh, I have money. I must buy a TV.
The one big difference is here is that you have to open your own IRA account, whereas a lot of times you just like click a button or you just tell your payroll at your job that you want to invest in the retirement package and it's kind of like automatically done for you, minus like a one page, like check off signature type thing. So there's a lot more effort for the IRA. The IRA is quite simple.
I was going to say, I think they've streamlined it. I've opened quite a few of them and I don't think they're that bad. I mean, it's like, I don't know, applying for a job.
It's- I literally just opened one in Wells Fargo. I said I want an IRA. They're like, okay.
Well, that's because you had a pre-existing account, but didn't you just open one up with SoFi? SoFi did it too and they're like, okay. So like it seems to me that you can just say, I want to have one of these and the banks are like, okay. So that's really cool.
And I know we were talking about probably not opening a SoFi till later, but like right after we did our episode the other week, Tim was like, I'm signing up for one. I'm moving everything out. We'll have feedback on that here shortly because it was a real relatively simple process, but we'll get to that.
All right. So the biggest key for the different kinds of accounts that you want to actually put your money into are going to be the availability to you, your timeframe, your goals, and your personal alignment. And like I said before, like if you're the kind of person that knows you're going to blow your wad, you probably should put your money into a retirement account.
A prime example of a criteria that people should consider is if you're young and you plan on buying a house and you're going to use a down payment. I think that is the one caveat with touching a retirement. I think you get a one-time homeowner's consumption.
But I'm saying like if you know like in your professional future or whatever that you're going to have like a wedding or a kick-ass vacation or buy a house, that you're going to have a big lump sum coming out. Meaning? Meaning that you probably want to put it into... Something you can touch? Something that you can pull out like $70,000 for a wedding or whatever. Yeah.
So that would be more of a savings type account. You would not be sticking that money into one of your retirement accounts because you'd have to pay the penalty on it. A lot of people do though.
Well, that's a big no-no if that's what people are doing. A lot of people actually will use their retirement account for their down payment in their house and they'll pay themselves back. Well, I know you can do that.
That is an exemption. However, I caution to not do that because you're taking away from your future happiness, health, fulfillment, all sorts of stuff. Like if you're going to put a down payment on a house, that needs to be an additional savings thing on the side.
And the thing is if you want to have a traditional account, if you want to have a Roth account, if you want to have a 401k and you want to have an IRA, you literally can have four separate accounts if you really wanted to. Not that I recommend it, but you totally have that option. So it just really depends on what you're looking for.
If you like the tax upfront thing, if you like the tax down the road thing, you want to go with the traditional versus the Roth. And if you have the employer access, go with the low hanging fruit of the 401k or open an IRA if you want more control for yourself. What I do with my IRA, not that anyone cares, but like whenever I find a stock like SoFi or EXAI that I know is going to be worth a shit ton of money, like at some point in the future, I don't know if it's going to be five years, 10 years, 20 years, I will actually purchase the shares in my IRA with that because it's already in my Roth because it's already taxed.
So whenever I get ridiculously huge gains from the SoFi stock or the Planeteer (PLTR) or the EXAI, I don't have to be taxed on it. So I kind of use it for my huge growth stocks. If he hits on the next Amazon or Tesla or Microsoft or whatever, he doesn't have to pay any taxes on those like out of the home run ballpark stuff.
So that's what I do with my IRA. So I just like outlined kind of the steps that I would go through for contemplation for this. So basically step one.
Step one is the one that we've mentioned previously, previously, previously a few times. You should not be investing if you don't have a savings slash emergency fund set up because if you put money into that, then you're going to be desperate if something happens that you didn't predict and you're going to have to liquidate, you're going to potentially get penalties if you have a retirement account set up or you're going to like rob your nest egg. You're going to have to sell assets in an inopportune time because that's just how the universe works.
If you need money desperately, you'll tend to have lower value in the stocks that you purchase. Just do yourself a favor at the bare minimum, set up a thousand dollars or figure out what your biggest whoopsie daisy or rogue emergency situation has been and use that as your bare minimum savings before you start investing. The other caveat could be if you have the goldfish syndrome, which some people do.
I don't have it with money, but I have it with counter space. She has it with every other aspect of her life. If there's free space, she has to fill it with shit.
I can't have it. I like to be able to see everything. It's just like free counter space.
It's like I can lay everything out. Tim's like, I don't have anywhere to eat again. I'm like, I'm sorry.
I'm like, I put this. I don't even know if it's a real thing, but I call it the goldfish syndrome. But I think there is a special term for it, but I think it's called, I forget what the word is, but basically every time you get a pay raise, you spend as much as you're making.
If you're taking money out of your check beforehand, which is what happens when you do a retirement account contribution through work, it gets taken out before your paycheck gets distributed. So if you never see that money, it's automatic. You don't see it.
You don't feel that loss, and that can a lot of times set you up for a success. So the one caveat I would say to the savings thing potentially would be that if your employer matches to set up an account with the employer, hit that matching limited contribution, and I'm telling you it's not that much because I think when I was at the government, I had a $96,000 a year salary, and it was 5% for 5%. I think I was contributing maybe like $146 a paycheck, and that was biweekly.
So I don't think that's that much money compared to what I was earning, and then they were matching the 5% up to that. So I was making 100% for essentially taking money away from me without me seeing it, and it wasn't a big deal. So that's where if you work at a job where the employer's willing to match what you contribute, that is awesome.
It's 100% gain right out the gate. You're literally getting 100% gain on your money because they're going to match you. That can be a game changer in retirement.
And that would be one of the times that I would take advantage of the 401k traditional option would be that because you're getting the 100% money. Who's going to argue with 100%? You're getting like a buy one, get one, absolutely. So you may want to start there versus the emergency fund if that is a situation that works for you.
Otherwise, the $1,000 minimum before you do that employer contribution, and then once you hit that bare minimum, I would actually go back to the emergency fund and make sure you set aside three to six months of your bare bones living expenses as a fallback. Bare bones, bare bones. Living expenses being mortgage, utilities, gas, insurance, groceries.
Basic essential food. Not eating out. Yes.
But groceries. Bare bones. Not any of the, what do you call it, discretionary? No discretionary funds.
That'll help you hit that quick. Well, what you'll find if you do that though is that you will actually have a lot less stress when it comes to finances because if shit hits the fan, you know you're covered for X amount of months. And that is a key because it keeps you from making really emotional, dumb decisions that are going to make things worse.
You want to have that safety fund. Trust me, once you get it in place, you're going to be like, wow, why didn't I do this before? It's just like it makes your life easier and it makes it less stressful. It's the fact that we have as much as we do in our emergency fund is awesome.
I'm not like the van breaks down, who gives a shit? I'll just get a new one. Someone rear end you, you're just like, ah, whatevs. So it makes a huge difference and that's why we've hammered the point home so often and so intensely is because it is, I don't think you can be in your right mind as an investor if you have stress about finances.
I could lose my job or I could have like a broken bone or the car could break down. If you have those type of lingering thoughts, you're not going to be an unemotional, empirical investor. You're going to be emotional and stressed and that it's very difficult to invest that way.
That's why we've brought it up so often and there's so many options out there that your emergency fund can actually be in something that you're making a lot of money on. Yes, there is no excuse in this day and age that your money should not be sitting around making at least four to five percent. Like no excuse.
It should not be sitting in a normal bank freaking savings account. You should be putting it in a high yield savings or going with Worthy. Worthy right now is paying seven percent.
7.5. They opted to 7.5. Holy crap. So seven percent for that. So far I just found out like just because you know I'm all about it this week.
If you set up a savings account and you have a direct deposit into your checking account, 300 free bucks in cash, 300 free dollars plus 4.6 percent interest on your savings account. So like literally your emergency fund could be making 4.6 percent without and it's FDIC insured. That's the difference between the SoFi one and the Worthy one.
Worthy is not FDIC insured. Even though it has collateral. So there's a different collateral and everything like I'm not worried about there's a 4 percent is excellent.
And this is another thing we're going to cover in a different episode. Whatever bank you're going with, they really got to benefit you not the other way around. Like SoFi is an excellent example versus Bank of America and Wells Fargo.
They charge you fees out the wazoo and that's the kind of money that you literally could be investing. The reason why we went from Wells Fargo to SoFi because she just brought up because if I don't get X amount of direct deposits in my account per month. He gets fees per month.
Or if I don't have X amount of dollars in my account, I get it's like a $25 fee. The average person pays $400 a year in bank penalties and fees. But they know I'm good for the money because I'm working and I take the money out and I put it in an investment account.
So I know I have the money because it's in a Wells Fargo brokerage account. So they know I have the money. So I don't know why they're giving me fees.
So basically they've pissed me off so bad that I'm just like we're getting rid of Wells Fargo. SoFi looks good. So I tried it out and yes.
So far it's a 10 thumbs up. Okay. So rehashing.
Step one, emergency fund. Step two, investing in a retirement account. The retirement account gives you that tax benefit down the road, which is something you definitely, definitely want to take advantage of.
They're harder for you to tap into. The reason that it's in this order is because if you have the emergency fund, you have less stress about investing. Then you put it in your retirement account because your retirement is going to be 20, 30 years down the road and you can't touch it.
So you're not going to be able to make stupid monetary decisions with it. That's why it's second instead of third behind invest in a brokerage account. Well, I'm actually going to break this into two parts here.
So investing in a retirement account, normally we would recommend doing the Roth option because anything you contribute to it, you can take out if you need it. But at the same time you're preparing for your future, which kind of two bird, one stones it. But if you have that employer match, you should definitely do that first because you're getting that free hundred percent or a hundred percent increase on what you're contributing.
So you do that to that minimum first, and then you should move over and actually open a Roth IRA unless your employer offers a Roth 401k option. I'm just saying the reason that investing in a retirement account is above investing in a dividend income brokerage account is because you can't take the money out premature. It's harder for you to tap it.
It's harder for you to have, it's harder for you to make emotional, irrational decisions. You also take advantage of the fact that because it's locked up, you get that compound factor. I've seen other publications and other quote experts do it the opposite way.
They do the emergency fund and they do the invest in your brokerage account and then contribute like 10% to your retirement account. The reason that we're doing it that way is we have a reason for it, and the reason is that you can't touch the money, so it's there. And actually, I probably wouldn't have that $100,000 in my retirement account had I had access to it.
I probably would have done something risky with it based on my previous whatever. You get the tax advantages with the retirement account, which is awesome, awesome, awesome. So basically, you're going to invest to match, and then you're going to do the Roth.
And the thing is, if you're getting a little bit of FOMO on the 401k if your employer doesn't offer that, and you think it's limiting for you to have the IRA, that's not true. So it's $23,000 versus a $7,000. $7,000 breaks down to $583 a month.
That's a lot of change to be thrown into an investment account. So do not tweak out if you don't have the 401k option. IRAs are absolutely acceptable, if not preferable in my opinion, our opinion, because of the flexibility and the ability to actually implement our strategy.
I prefer the IRAs or Roths compared to traditional. I just don't like traditional. But basically, it boils down to traditional and Roth is up to you.
We definitely think the Roth is the gold standard. You can take out that initial investment if you really absolutely need to, but at the same time, if you don't, you're setting your future up for success. And if you're a longtime listener, you know about risk mitigation.
Risk mitigation is being able to tap into a $25,000 or $50,000 investment in a Roth. That's a risk mitigation that you don't... Not that you plan on it. I'm not saying that you need to do it, but the fact that the option is there is a risk mitigation that should make you sleep easier at night.
That's why I prefer one to the other. And then you have the never paying taxes again on the principal or any other earnings. I do like giving the government the finger too.
Basically, that's how I feel at the same time too. And again, keep in mind, you have to invest while you can, because once you start making over the $160,000 threshold, you basically get chopped off for the Roth option. So if you plan to make more money from the future, get your $7,000 a year now invested and it'll just compound and grow.
So you can do both if you really want to do both. You can split the investments. You can do 25% one, 75% the other.
Choose your own adventure. But I wouldn't go crazy unless the only reason that I would stick with a full blown retirement account and not do a regular brokerage account like we have would be if you absolutely positively no if, ands, or buts, know you are going to work until 59 and a half. You're going to love your job.
You're never going to want to go anywhere different. You know that for absolute certainty. For the rest of us who know that things change and who know that we like having a choice and not having to work until we're 59 and a half or having to stay in a specific job, we want the FU money.
For those of us, step three is opening a regular brokerage account so that you can tap any money now before you hit 59 and a half and you don't have to worry about the penalty nonsense. So we actually put a little bit more heavy emphasis on this because we want more retirement early type situation. But we're also still planning for that Roth situation for down the road as a backup potential replacement for Social Security kind of type thing.
Cherry on top. Yeah, basically. The cherry on top of our dividend Sunday.
Oh my God. All right. So let's throw some numbers out here to give you guys like some point of view.
Like a lot of people say, oh, I'm not going to worry about investing in my retirement until later. But again, if you read anything that makes any sense and you understand how math and compounding work, apparently that's not intuitive and common sense even among engineers according to the idiots I used to work with. Compounding. Time of investments and compounding are literally the saving grace and here's why.
If you only invest a hundred dollars a month over a 30-year period at the 10% yield which you'll get if you use our strategy, you'd be making $228,000 or you'd have that amount of money at the end of the 30 years and then if you were invested like we would have, you'd be making $1,900 a month from that nest egg. That is well below the million dollar threshold and that is more than the average social security is paying out. So tell me, how hard is it to find $25 a week? Seriously, $100 a month is nothing and so easy for you to set up and if that's literally what you want your goose egg for your Roth IRA account, you can find $100 a month.
Braid your neighbor's hair for $25 a week. Babysit your friend's kids once a week. You can do something to make that $25 a week.
Hook on corners. I don't recommend that if it's illegal in your area. You can walk your neighbor's pets.
You can do all sorts of different stuff. If you're great at poker, I don't know, take money from your friends. Sell some crap at your house.
Flip stuff at yard sales. I mean you can find, get creative. You can do Grubhub.
You can do all sorts of stuff. Instacart is actually a pretty easy way to make $25 a week. Yeah, seriously.
That's all you need and if you want to just blast out $100 at one pop, power to you. It's easy enough to make $100 a day on that. We did that for a hot minute and it actually is pretty easy.
I don't like the neediness of the clientele. But if you have a reason and you're literally investing in your future, that's phenomenal. If you jumped up to $200 a month, that would give you $456,000 at the end, which then invested the way we would do, would give you $3,800 a month in passive income.
$3,800. $3,800. Double.
At $300 a month, you'd be at $684,000 at the end and you'd be making $5,700 a month. That's more than the average American makes in their salary. So if you can put $300 a month for a 30-year period into your retirement account and you choose to retire at 59 and a half, you're set.
Now she's going to give you numbers to show you why it's so important and imperative to invest as soon as you can. Invest early as soon as you can. So again, compounding and time, huge.
Give them the numbers. All right. So over a 15-year period, which is half of what we just discussed, at $400 a month, we're not even going to do the other ones because it literally doesn't shoot out enough money.
$400 a month gives you $167.5,000 and it would only give you $1,380 a month. To even equal the $100 a month for the 30-year, you'd have to be investing $550 a month for 15 years to even get close to that $1,900 threshold. What is that? That's 5.5 times the amount of money.
You have to invest 500% more to make the exact same amount that you would if you just did $100 a month for an extra 15 years. So sorry to burst anybody's bubble if they missed the boat early type deal, but it's not a hopeless cause. I actually had an email and we discussed it in the podcast about longevity.
So even if you're, say, 57, you still have 30 years because everyone's living to be 90. And that was what I was going to say. The other key is people are living longer.
So it's like, as long as you prioritize your health and you have quality years ahead of you, even if you're 50 like Tim and almost 40 like me... I'm 47. Thank you. I'm sorry.
I'm ahead. I'm way ahead. I'm not 50.
You bitch. What am I, 38? I don't even remember. You're 38.
But basically, you still have 20, 30 years. So it's like the people who started investing that $100 in their 20s, you have like 50 years. Extrapolate out.
If you start in your 20s, investing $100 a week, and that's all you do, and you do that for 60 or 70 years, you're going to be fucking a millionaire. A week? No, all you need is $100 a month. $100 a month.
I'm sorry. You do that $100 a month, you're going to be close to a millionaire. If you did, I think, the $400, you're close to a millionaire, which you can totally do.
You can do it in the brokerage that's outside the retirement account, or you can do it in the retirement account, or you can split it depending on what you think you're going to do with your job. So it really depends on you. Just to illustrate how simple it is, like we don't really make a lot of money, and I have investments in like six different things that I don't even remember putting into.
Because Tim's made a priority to invest first. I'm making interest and dividends on like all this money that I didn't need because I don't really spend much. I'm kind of simple outside of my Bobelo and my ONs.
Well, he figured out a way to make his addictions or his must-have-once-happiness factor, whatever you call it. It's discretionaries. But we don't make a lot.
I think I made less than $20,000 last year. Yeah. And Tim's able, how much do you have now in Worthy? $8,000? Worthy, I have $6,500 in Worthy.
I have $4,000 in- And I think that was in less than a year, wasn't it? $4,000 in SoFi, my brokerage account in SoFi. Yeah, it was less than a year. Less than a year.
I have $1,000 in Stewart. I have $1,800 in Fundrise. I have $500 in Robinhood.
I have $4,000 in Coinbase. So I have so much money in all these different investments with only making like $19,000 take home. So the point here is if you only have 15 years left, if you get intentional and you prioritize investing, you can put a lot away.
And as soon as you hit your threshold for the strategy that And actually, we might have come up with a new strategy to essentially give you that passive income. It's a little more risky, but at the same time, if you do it properly- Well, that's a to-be-discussed-later-potentially thing that we're going to do with our money to see what happens. Yeah.
So we're going to experiment with that because we're going to probably have like $80,000 or $100,000 equity from selling this condo off here in the next month or two. So we will tell you about that experiment when we do it. Mm-hmm.
It's going to be glorious. So if we make mistakes, you guys can avoid them. But that's the whole point.
So hopefully, this gives you some information on what type of account to go with. I know the beginning there was a little choppy with like what the hell is a traditional versus a Roth and then 401k IRA. Again, it's technically four separate accounts and it really just depends.
The way that we do the tax one, it's going to be choppy as buck. I've really- Chop, chop, chop, chop, chop, chop. I'm really, really not wanting to do that.
That one, we'll get to that whenever the hell we get to that one. Unless we have high demand on that, I'm going to default elsewhere. Most people should have an account, so it shouldn't matter.
Yeah. Next week, I actually got a couple questions on Instagram about a starter portfolio. So next week is literally going to be a starter portfolio.
And so if you're just starting in income investing, what I would recommend picking up, I'm actually going to make recommendations, which I've never done. Oh, look at that. Special.
So let's rehash real quick. Savings account, $1,000 minimum, up to three to six months. Savings account, emergency fund.
Retirement account, go with the Roth IRA option. Unless your employer does a contribution match, do that first only at the bare minimum that they max and then move over to the Roth IRA. And again, your threshold for how much you're putting into that a month will depend on if you want to retire early or not.
If you want to retire early, open that brokerage account that doesn't have a retirement account and invest. If you look at how that works, if you have $500 to invest a month, so you'd put $500 into your emergency fund for let's say three or six months. And then once you do that, then you'd be putting $500 a month into your Roth for, I don't know, say a year.
So what I would do is if you had the $500 a month, I'd do the emergency fund and then I'd bounce over and I would determine, am I going to want to retire before 59 and a half or do I not care and I'm just going to retire after? If I'm going to retire before, I would probably put $300 in the brokerage account that is not a retirement account and I would put the other $200 in the retirement account. That's what I was trying to get at. If you are going to be living off your dividends before you're 60, then you need to put more into your brokerage than your retirement.
Yes. If you're going to be living off of your dividends about the same time that you're retiring, then you can... Half and half it. The half and half.
And if you're planning to wait entirely, you don't even have to open the brokerage account that's outside of it. You can put everything into the retirement account. That's actually pretty simple.
If you're older, you could literally just do a 401k or IRA and then just live off the dividends once you get... I think the other thing I forgot to mention is with the Roth option versus the traditional option, the traditional forces you to do that distribution thing at 70, 70 and a half, I think it is. If you have a Roth option, you never have to do that. Ooh.
And you know, I'm a wild pony. I hate being told what I have to do. So... Yes.
Fook that. Fook that. So Roth it is.
Phuket India (Thailand). Yeah. And I have to deal with this with my mom because my mom's hitting, what is she? 50, 66, I think.
So I got to figure this out in the next four years because she's going to have so much money in crypto retirement. She's going to have so much money in her Vanguard account. That's going to be a really interesting... Ludicrous.
When I figure that out, I will let you guys know because I'm sure some of you will have to deal with that in the foreseeable future. She is the poster child of how everything that we are talking about and writing about and living about makes you rich. Basically.
All right, guys. So hopefully that helped you. So next week we're going to do the starter portfolio, which should be really interesting.
So even if you've already started investing, you can look at, take a glance at that and figure out where your holes are at and plug some stuff in. Das is gut. Da.
All right. See you guys next time.