Episode #16- The 9-Step Wealth Decisions Plan for Financial Freedom
Wealth Decisions Podcast Transcript for Episode #- 16
Listen to this episode on Apple Podcasts or Spotify
Welcome to The Wealth Decisions Podcast, where each week I take 15 minutes or less to discuss crucial wealth decisions and mindset hacks to help you live a richer life.
I'm your host, Brian Muller, and I've been in the financial services industry for over 25 years, and I'm also a certified life and health coach.
And I have a passion for helping people make better decisions around their money and their life.
So for the sake of time, let's dive right into it.
In today's episode, I'm going to be revealing my 9-Step Wealth Decisions Plan to achieve financial freedom.
In episodes 1 through 10 of the Wealth Decisions Podcast, I talked about some of the crucial wealth decisions I think you need to make along your financial journey.
But one thing we haven't really discussed is what is the order of importance in terms of those decisions that you need to be making along this path towards retirement, financial independence, or financial freedom.
So in 15 minutes or less, I'm going to lay out my 9-Step Wealth Decisions Plan for you.
And there will also be a link that you can download on my website.
That will be in the description of this podcast that will show the entire Wealth Decisions Plan and give an example of an individual saving for retirement and how they could supercharge their retirement to gain financial freedom.
So step number one is I want you to save at least three months of expenses in an emergency account.
Determine what you need each month to cover your basic needs.
Take that number and multiply it by three.
And set up a money market account to automatically save a percentage of your income until you have at least three months.
And keep that money market away from your checking and savings account.
Keep it in maybe another bank account or an investment account at a brokerage firm.
While you're doing that, continue to contribute to your 401k, but just contribute what you need to contribute to get your match.
Step number two is to get rid of high interest debt.
If you have one credit card or multiple credit cards, you have to get out of debt.
Debt is a wealth killer.
Focus in on your smallest credit card first and get rid of that.
I think the snowball effect is very effective.
The Dave Ramsey approach.
And have a goal of when you can have those cards paid off by.
And take your credit card out of your wallet, put it in your freezer, put it in your sock drawer, get it out of your wallet or cut it up.
Step number three is to contribute a minimum of 10% in the Roth 401k option.
Unless you're in the highest tax bracket.
If you're in the highest tax bracket possible, do a combination of pre-tax and Roth 401k contributions.
And if you have a job where you get either quarterly bonuses or a year-end bonus, which is most common, if you get a year-end bonus, up your pre-tax contribution to 20 to 40% just for the bonus period to avoid those high taxes that bonuses tend to get.
Step number four is to contribute the max you possibly can to a health savings account.
And that max in 2024 is $4,150 for individuals and $8,300 for families.
Invest your contributions in a mix appropriate for your stage in life and risk tolerance.
I typically see people have HSAs and it's all invested in a stable value fund.
They forgot to look at investing that because we just don't think of health savings accounts the same as we do 401Ks, but make sure you invest that money inside the HSA.
HSAs are a great tool because they're pre-tax money going in there.
They're basically triple tax exempt.
And then if you use that money for expenses down the road that are related to medical expenses or deductibles, it comes out tax free.
So they're a great tool to have as another account that you can draw from in retirement, obviously for specific things related to health care.
And once you've done those first four steps, I want you to go back to your emergency account and focus on adding an additional three months to your emergency money market account.
And keep it in an account, again, not in the same place as your checking or savings.
And if an emergency comes up and you take money out of that account, try to replenish back to six months of expenses to be covered.
Step number six is to max out your retirement plan if 10% is not enough.
The maximum in 2024 is $23,000.
And if you're over the age of 50, you can contribute an additional $7,500 with a catch up provision.
Step number seven is to max your Roth IRA, convert your IRA to a Roth, or use the backdoor Roth strategy.
You can contribute $7,000 to a Roth IRA if you're eligible.
And you can look up those income limits on a Google search.
But also think about, consider partially converting your IRA to a Roth by looking at how much room is in your current tax bracket and have a multi-year strategy to convert some of your IRA, if it makes sense.
But definitely consult a financial advisor before you think about doing some type of conversion strategy.
And if you don't have an existing IRA, you can use a strategy called the Backdoor Roth Strategy if you're not eligible to contribute to a Roth.
And what you do with that is you contribute to a non-deductible IRA and immediately convert it to a Roth IRA.
That's called the Backdoor IRA.
So if you're over the income limits, there are ways to get money invested in a Roth IRA.
So step number 8 is to explore the Mega Roth Strategy.
I know we're talking about all these different Backdoor Roth Strategies and conversion strategies and things like that, but the Mega Roth is a way to superfund your retirement.
So ask your employer if there's an after-tax option in your 401k.
If you don't have this after-tax option, I'd suggest just investing in a taxable investment account as much as you can on top of the other contributions you're making for retirement.
One thing to note, your employer plan must have an in-service withdrawal option.
So you'll be able to contribute to this after-tax option and then roll it at the end of the year into your Roth IRA.
You want to make sure that your total contributions to your pre-tax 401k, your Roth 401k, and your employer contributions and this after-tax does not exceed the 415 limit, which is $69,000 in 2024.
For instance, if you're investing the max in your 401k along with a catch-up provision because you're over the age of 15, age of 50, you could contribute $30,500 yourself with that catch-up provision.
And if your company actually matched, did some matching contributions, and let's say they put in $12,500, you take those two numbers and add them up and then minus that from $69,000 and that's going to tell you how much you could contribute to an after-tax option in your 401k each year on top of your 401k contributions.
And the final step in the Wealth Decisions Plan is to pay down your mortgage.
Figure out what you need to pay on a monthly basis to pay down your mortgage by the time you retire.
Consider refinancing potentially to a 15-year mortgage.
And also think about or adopt a bi-weekly payment towards your mortgage.
That will help pay it down even quicker.
In the description of this podcast, you're going to find a link to go to my website to be able to download this 9-Step Wealth Decisions Plan to gain financial freedom.
In the Wealth Decisions Plan, you're going to find an example of a scenario of a 50-year-old client making $250,000 per year and wanting to retire at age 60.
She currently has $750,000 saved in her retirement account, all in her pre-tax 401k.
And she receives a match of 5% from her employer.
She says she needs $120,000 per year to live comfortably in retirement and travel and help her grandkids with college.
But she needs about $8,000 per month to cover her basic needs.
She has some credit card debt, and she currently has about $20,000 in savings at her bank and has about $150,000 left on her mortgage.
A lot of people that are age 50 or age 55, they're in this retirement red zone, and they're looking to superfund their retirement so that they can achieve financial freedom or financial independence or just financial peace of mind and do the things they want to do in retirement without having to worry on whether they'll outlive their money.
And that's what the Wealth Decisions Plan is designed for.
This is designed for somebody typically anywhere from age 45 to age 55 that wants to retire in 10 to 15 years.
So if that's you, download the free guide, take a look at the examples, get in touch.
This is not something where you can take and not have a financial advisor, build a financial plan for you or invest your money according to your risk tolerance.
But it is a guide for those of you that maybe want to see if they're doing the right things at that particular point in life.
Now, this isn't perfect.
It's just a process and a timeline and a way to kind of have a priority for things you should focus on first and get to that point where you keep building and building upon your wealth so that you can achieve those long-term goals, whether that's financial independence or financial freedom.
Now, I'm not going to go into the results over the podcast.
You can go download the 9-Step Wealth Decisions Plan to see that example of what this individual was able to do over a 10-year period to superfund their retirement.
But they started with 100% in pre-tax 401k assets.
So they had no Roth IRAs.
But using this strategy to superfund their retirement and get more and more money into Roth assets, we were able to get her percentage of her total net worth of investments to about 30% in Roth assets.
And that's going to help create a more tax-efficient income in retirement.
So not everything is in an IRA that you're going to have to draw from and taxed at whatever tax rates are going to be 5, 10, 15 years from now.
So she was able to superfund her retirement and she was able to do it.
The kids were gone, so she had more discretionary income to save.
And she was able to turn that $750,000.
This is just assuming an 8% rate of return over that 10-year period of time.
But by doing these steps and superfunding her retirement, she was able to grow her nest egg from $750,000 to about $2.9 million and create a total monthly after-tax income of nearly $10,000.
So if you want to retire anywhere from 10 to 15 years from now, now it's different for everyone.
This particular individual needed $120,000 a year after tax to live comfortably.
Not everyone is going to need that amount of money.
It all depends on your lifestyle today and what you want in the future.
Most people that have a more frugal lifestyle or a living below their means lifestyle are always going to have that type of mindset.
Just keep in mind that this example of this Wealth Decisions Plan is based upon hypothetical performance.
We're going to have good years, we're going to have bad years, but this was using an 8% average rate of return.
And past performance is not a guarantee of future results, all that stuff.
But what this does show is that if you really put your mind to it and create a plan designed to superfund your retirement, you can achieve financial freedom and live that richer life that you've always hoped for, for you and your family.
That's it for today's episode, number 16, The Wealth Decisions 9-Step Plan for Financial Freedom.
Listen to this episode on Apple Podcasts or Spotify
-Brian D. Muller, AAMS® Founder, Wealth Advisor
Momentous Wealth Advisors in a fee-only fiduciary advisory firm
Disclaimer: This material is for informational purposes only and should not be construed as investment advice. Past performance is not indicative of future results. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.
Investors should understand the risks involved in owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates and investors can lose some or all of their principal.
Always consult with a qualified financial professional before making any investment decisions.