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National Webcast
Anticipate the Unexpected
Alexandra Nobile, Retirement Insights and Kenny Obeso, Retirement Education Consultant discuss current trends associated with sudden spending increases and provide actionable tips to regain control over your finances.
00:00 Thank you all for standing by unless otherwise stated. All information referred to in this presentation is as of March 19th, 2024.
00:09 This meeting is being recorded and all or part of the audio portion may be used for replay, or for other JP Morgan purposes.
00:17 So with that, thank you for joining us today. I'd like to welcome you to our retirement webcast. My name is Kenny Obeso, retirement education consultant with JP Morgan. And I'm excited to be joined today by Alex Noble, who works with the JP Morgan retirement insights team.
00:38 And she'll be breaking down key data points for unexpected spending increases. Or spending spikes for American households. And we'll use slides from our award-winning guide to retirement for considerations of getting our budget for retirement savings on track.
00:56 So she has unique access to defined contribution participant data, and chase consumer spending data. As well as research collaboration with the Employee Benefit Research Institute, better known as EBRI.
01:09 So needless to say, she's very knowledgeable on the topic. Now, the way I wanted to set the tone for our discussion today is with some JP Morgan research.
01:21 The reality is, all our lives are different, our income levels are different, our spending habits are different, but what we're seeing is American Households aren't hitting retirement savings targets. With a survey that was done, it indicated that individuals should be saving around 16% for retirement but nearly half were contributing less than 10%.
01:50 Now, we often hear a lot of news around a record number of early withdrawals from 401k due to financial emergencies.
02:00 So, within the survey, the question- was asked, well, what's the reason? Why are you not able to get to those savings targets that you're looking for in your 401k?
02:11 And here on the screen, we could see some of the responses. The major reason being having to pay off debt.
02:18 Not earning enough. Now. Other savings priorities. Or other spending priorities. So, what I wanted to do is pull up an anonymous poll here using the zoom and ask you all who are attending today a very similar question.
02:35 In fact, the same exact question. So, which if any of the following are major reasons you're not saving more for retirement now for your 401k?
02:47 And you know when I look at some of these responses, whether it’s, I have to pay off debt, or spending priorities, that's really what stands out to me when I look at these options.
02:58 Cost of living is always going up. I know a colleague of mine has a daughter who loves Taylor Swift.
03:05 And when we look at Taylor Swift Eras tour, which is all over the world sold out, the average ticket is about over $1,000.
03:17 Not to mention the resale ticket is over $3,000 per person. Now I don't want any Swifties to come after me using these Zoom emojis, but that's a lot of money, right?
03:32 And I'm sure she, she deserves it, but that's a lot of money when we're thinking daily what we're spending or money on.
03:41 So let's take a look at the poll, so I'm going to go ahead and close it off now and . . . Alex, what I find interesting is that I'm sharing the results now and the results are pretty much in line with what the JP on side of We'll see Morgan plant participant research indicated, right?
03:59 That the reason why we're not getting to those targets and those goals is because we have to pay off debt.
04:05 We have those other spending priorities that we have available. level. So that's really interesting. And what I want to do, I thank you all for participating in that now.
04:17 Alex, I know you have led some of the survey-based research. So going deeper into some of the work you've done, talk to us about some of your findings.
04:27 Thank you so much Kenny and thank you all for being here today. On the next slide, we can go into this a little bit deeper and so you know Kenny mentioned we have a great partnership with the Employee Benefit Research Institute.
04:39 We also have access to unique data. Yeah. At Chase, we think half of U.S. households and so we're really able to get some really good insights understanding how the average American is both saving in their retirement accounts as well as spending and saving in their bank accounts.
04:57 And so back on the last slide, you know we talked about folks are really prioritizing. There's a lot of things to prioritize.
05:03 So you know when we think about those of us who have debt to pay off, then we think about the current environment the last few years for inflation has really been sky high.
05:13 If you're anything like me when you go to the grocery store. You are continually shocked at your bill for the amount of goods you're actually purchasing.
05:20 I just have my grandmother in my head you know thinking about like how the cost of eggs and everything and now I'm that person because they just have jumped so much.
05:29 So there's so many things. That we are trying to prioritize just for day to day living expenses. Then we think about retirement savings and as Kenny saw in the last slide folks know they should be saving more but they just can't get there and what often happens.
05:47 We see we do a lot of behavioral work as well or we have small groups and talking to participants and understanding what's holding them back and we really see that folks and I can relate to this too right.
06:00 You have something that feels so overwhelming. You just don't. know where to begin you know thinking about back a year or two ago when I had my first child and the idea of working out for the first time was so overwhelming and I put it off for months and months and months but I could have just maybe
06:14 taken baby steps right and just started to do it but it just felt like too much and so this is human nature.
06:20 This is something that we're continually fighting and so the good news is you all are here today and so you're here taking that first step and that is really almost half of the battle and what we can do today is look at some of this data and of course like Kenny said everyone's unique situation is their
06:37 own but we can learn from big data and see you know what are other households experiencing and then perhaps if something similar happens for us we have one of these spending shocks that we'll go into as the title of today's you know session suggests you might be able to anticipate those and so it'll
06:55 be a little bit easier and maybe hopefully a little bit less overwhelming to navigate so let's jump into the research so we found this study that we released a couple of months ago we found about 9 and 10 households experienced spending spikes and so these are increases of about 25% compared
07:17 to the last year or so of spending and so 9 and 10 had spending spikes that were caused by greater than their income so they couldn't fund this you know 25% increase with just their income alone.
07:31 One in three households had uh these spending spikes that were above income and cash reserves. serves. So this meant they didn't have that emergency savings to tap into to overcome this spending shock or this spending increase.
07:49 So in the next slide we also wanted to take a look at how many spending shocks folks experienced and again this can be helpful or thinking about you know maybe what to expect right and what to anticipate.
08:03 We saw about three times per year these spending shocks were above income and two times the year they were greater than both income and cash reserves or emergency savings.
08:17 So we call these unfunded spending spikes because folks just didn't have the ability to pay for them with their income or their savings.
08:27 What's also interesting what we saw, and again this is anonymized data, but what we saw when we looked at that data was that often the category where some of these spending spikes occurred were in a healthcare related expense.
08:39 So these are things of course that you really can't anticipate. But it's really helpful to be ready for them.
08:47 Moving ahead to the next slide. We wanted to see, so I just said that you know folks they were, these spending spikes were you know greater than income and cash reserves.
08:57 So what happened? How are folks funding these? They have to pay these bills and so things are adding up.
09:05 We saw about 5 and 10 or 48% increased our credit card debt. And so this is of course problematic credit card.
09:15 Interest rates are pretty high and this is a death that can be hard to pay back. We also saw these folks often maxed out their credit cards and so they had revolving debt and again this can put us in a in a bit of a sticky situation.
09:32 After folks maxed out their credit cards, they often looked to their 401Ks and so we can see here about 17% took a plan loan from their 401K.
09:44 And of course this can be problematic right because if you know depending on what age you are there could be penalties as well as taxes you know paid on these and so and if you're not paying this back right those penalties.
09:57 So I mean what we saw was that folks actually weren't often paying back the loans that they took from their 401K.
10:03 And so they were kind of stealing from their future selves right to fund these spending spikes. And so finally about 13% additionally took that extra step and decreased their contribution.
10:19 And to their retirement savings as well. So not only are they they're racking up credit card debt, they're taking loans and they're not paying themselves back.
10:28 And finally they're decreasing the amount that they're actually saving for their retirement. And we already know most folks aren't saving it.
10:35 Enough. So this can put us in a in a bit of a sticky situation and then having to think about you know coming back from debt, paying back debt.
10:44 And so what we saw is that folks that had these unfunded spending spikes had overall lower retirement savings and balances.
10:53 So today we're talking about retirement, but we also just talked about emergency savings and spending spikes and so just to kind of bring it home what we saw is that folks who didn't have a healthy emergency savings.
11:05 This actually negatively affected their retirement readiness and their retirement savings and so again this can feel like a lot but in a couple of slides we're going to go through a bit of a plan and how you could think about prioritizing emergency savings and the whole scheme of retirement savings.
11:23 Thank you. Alright so jumping ahead to the next slide. I did also want to take a preview a little bit of our other research that's related so we did another study that we that we launched a month or two ago and we wanted to share since it is super topical.
11:46 You know that 45 million Americans should are more than 1.6 trillion in debt. Additionally, student loan payments restarted back in October.
11:57 Hopefully some of you perhaps have gotten some of that student loan forgiveness, but I know not everyone. And so this is something that's really top of mind to a lot of people.
12:06 Especially, you know, then there are a few years when we didn't have to worry about it. And then this. This could feel like a shock within itself.
12:13 Like having to think about paying student loans while dealing with inflation and those have, you know, increased price of goods while thinking about saving for retirement.
12:22 But the way that I kind of think about all of this is knowledge is power. And so today what we saw looking in the data and also just seeing, seeing what was going on for folks with student debt.
12:35 I saw one in four reduce their retirement contributions when student loan payments started. So these folks just didn't feel like they have the capacity to save at their current levels once student loan payments began.
12:50 Additionally, we saw that average contribution rates and plan balances retirement savings balances were lower for those with student debt. So again, this makes sense,
13:01 These folks are balancing more, have other uh have debt that they have to pay off. Perhaps like a lot of you all who said you know more than more than four and ten who said that you were prioritizing paying off debt and that was what was holding you back from for more retirement.
13:15 So this is something a lot of us are dealing with and so you know this is just seeing it in the numbers.
13:21 It's really interesting to see uh you know that we're not in it alone. It was interesting to see as well that when student loan payments stopped about 30% of folks actually were able to increase their retirement savings and so when we think about kind of a plan forward we can talk about that and
13:39 how we can kind of plan for the future because we might not be able to take an immediate step today but I think having a plan is just so crucial.
13:47 And again almost really half the battle. So Kenny that was the real highlights of the research that I wanted to share.
13:55 I'll pass it back over to you. I know you have some good slides to talk through.
14:01 Thanks Alex a lot of this data that you shared with us really shines a light on our current landscape and what's going on now.
14:12 I'm happy that you mentioned things like student loan that have opened up in October and it's really affected many household budgets. The credit card debt having to go up and I think when listening to all this research and data that's being compiled it serves as
14:31 a great reminder on how the only constant in life is change and it's important that we have a plan set in place for our goals and what we want to do during those retirement years which kind of brings us back to this retirement equation where we often times are
14:52 thinking about what's going on around us and you touched on some important things you know medical spending and all these different spending things we have around us, well how do we even focus on retirement it's always important that when we're sitting down and revisiting a plan or putting
15:08 a plan together for the first time we focus on the things that we can control right so we don't have control with what's going on in the stock market nor what's going on in Washington DC if they decide to make any changes to taxes or maybe the social security program right and we
15:26 have some limited control over our employment so we all went through an interview process and we accepted the current role that we're working in now and what we should be focusing on are the fundamentals and on the upper left hand side you can see there what we have complete
15:44 control of and I want to focus a lot of our discussion now and moving forward on that saving and spending part of it, I think it's really topical with our today's discussion because the reality is you know when we think about retirement and the dreams that we have you know those dreams
16:02 without a price tag is just a wish so it's so important that we put a number to it and understand well where do I sit today how much do I need with my current income to set aside for my essentials my mortgage payments for my car payments right how much do I have to set aside for those groceries
16:21 that you touched on Alex that prices are going up you know every time you go into the grocery store.
16:27 and then from there understand how much can I put aside for savings and the reality is if savings and that bucket of savings is not there especially for things like retirement you know exploring that budget and having to make some tough decisions in reducing or spending is important.
16:46 I touched on the Taylor Swift concert which still thousand dollars per person is a lot of money I heard that Taylor Swift in that concert she made it available in the movie theater so perhaps instead of paying tickets for in person you can go to the movies where
17:06 it's twenty to thirty dollars a person or I just heard now that her concerts going to be made available on Disney Plus.
17:15 So maybe hosting a swiftie Saturday home party. There's different options and it's important that we make those type of you know mindset shifts in our mind so that way we can accommodate the savings aspect.
17:30 And Alex this is where I want to get you your thoughts here because as you know we're exploring spending and having a budget and we understand how important it is.
17:39 When we find the pockets of savings what strategies can we also explore? Yeah, I think this is great Kenny and just really focusing on what you can control, what you cannot control.
17:53 You know for me I remember the first year we moved into our home. We had a leak and then all of a sudden you know we thought we would have a few years and then all of a sudden we had a to get a new roof.
18:04 So talk about a spending shock. And that's when we started when my husband and I joke our financial diet really focusing on you know not eating out as much and really making more from home and just being you know oftentimes go going through and like sweeping through what are the streaming services I'm
18:22 actually using right now because really just taking stock of these things you realize you know what you haven't been using what you have and um because a lot of us just don't take a lot of time to do it and I'm guilty of it too and kind of every a couple of months I have to pull back and say you know
18:38 what am I spending my money on where do I need to reevaluate because it can it can definitely add up really quickly.
18:44 So when we think about prioritizing long term savings retirement savings you know what we really saw today was. With that research is that emergency savings is really the crux of a lot of a lot right it's the crux of everything here if we don't have a healthy emergency savings it's ultimately going to
19:03 impact our retirement readiness. And so. The first step that we can take again and if you're taking one step today it's really to build that emergency that emergency savings that emergency reserve.
19:16 And the amount that we're targeting here for folks who are currently working is two to three months of pay. So this is the bucket that we want to have available in case something happens for us.
19:29 If you are currently retired the amount that you want to think about setting aside is a little bit more at three to six months of income.
19:36 But if you are currently working individually in the two to three months. And so once we have that healthy emergency savings then we want to think about contributing to our employer sponsored retirement plan.
19:50 Or we can see here on step two the defined contribution savings. And until here. We're going to think about maximizing to the employer match.
19:59 So if you do have an employer match. Say your match is three percent. You're going to want to at least contribute up to that three percent level.
20:07 So you can get that employer match, right? We don't want to throw away that. have three money that our employer is giving us.
20:13 So we first we have that emergency savings and then we contribute to that employer match. Number three here that we want to take a look at is paying down high interest loans.
20:25 So these are any loans that are higher than seven percent. And we want to think about paying these down.
20:31 So things like credit card debt, paying them down as soon as we can. Uh next up uh for if you do have an HSA that's offered through your employer, I know not all of us do.
20:42 You do want to think about that because there's some really good tax benefits to HSA's. But step five then is really contributing to additional savings to that DC or employer sponsored plan.
20:57 And industry experts Recommend saving about 10 to 15%. But I know that all of us can get there overnight. And so on the next slide once we get to it we'll talk about kind of an effective strategy for that.
21:11 The thinking about saving more. So saving beyond Thanks for an employee or match. Step six here which we can see on the slide is paying down lower interest loans.
21:22 So these are loans that are less than 7% perhaps you student loan death that you might have. And then finally uh step seven or an eight.
21:31 Contributing to an IRA or an additional taxable account for savings. So this is kind of a road map here.
21:38 You know when we feel overwhelmed and we're not sure where to start. This is a great slide from our guide to retirement that was actually just updated last month.
21:45 And so it's fresh. So definitely check it out. This is one of our best slides that really just helps to break everything down for us.
21:54 So we don't feel overwhelmed, right? Knowledge is power. We now have a plan of action. And if we can just think about doing one or two of these, you know today.
22:03 In the next year, then we're ultimately really going to set ourselves up for success and our future selves are really going to thank us.
22:11 So in the next slide, I mentioned, you know, not all of us can think about automatically and contributing to their retirement savings.
22:19 at 10 to 15%. That is a lot of money. So I think this slide is really great. It's also from our guide to retirement.
22:28 And we can see here at the bottom, there is an individual here, right, who's consistently contributing at 3%. And I should say to just taking a look at the right, the model assumptions for this person.
22:39 So we have in mind someone just for comparison sake. We're looking at someone who's age 25. They plan to retire at age 65.
22:47 And they have a starting salary of 50,000 with 2.5%. Thank you. Uh, wage growth expected. So just so we're comparing apples to apples.
22:56 Uh, so we have someone starting out contributing at 3% in blue at the bottom and they stay at this amount through their full working career.
23:05 And at retirement they have 880,000. So this saved. Let's contrast this to the person of purple, who is consistently contributing 10%.
23:15 So this is great. They retire with 2.2 million in their retirement account. They were able to stretch from the beginning.
23:23 And they consistently contributed 10%. But now I really want to focus on the person in green. So this person knew they needed to be saving.
23:32 They maybe wish that they could save more but they started at 3% because that was what was practical for them.
23:37 Perhaps that was you know what their employer was. That was matching. And then they made a plan right to automatically escalate themselves right by 1% each year.
23:48 And so over time they eventually got to 10% right to that that industry recommended range. And it didn't happen overnight, but they got there.
23:59 And what we can see is this individual has 2 million at the point of retirement. Which is just 200,000 less than that person in purple who stretched and was contributing 10% at the start.
24:10 So this just goes to show. Right, you don't need to make a big change overnight, but just having a plan and consistently acting on that plan and getting yourself there really is crucial.
24:21 Right, having that emergency savings, building that, that strong base and then adding up. And being able to eventually save, you know, that 10 to 15% in your retirement, your employer sponsored retirement plan.
24:35 It's just a great plan and your future self will really thank you. Yeah, that is some great information, Alex. And you're absolutely right when it comes to, you know, the prioritization of long term savings and using tools like this auto escalation, you know, sometimes it may feel like an uphill battle
24:55 , but if you just take it small steps at a time, you know, you're. Like you've mentioned, your future self will definitely thank you.
25:02 On that note, thanks Alex, you've given us so many things to consider, and helped us understand, how budgeting and taking small steps in reducing our spending.
25:15 And increasing our savings can go a long way in the future. So, for more information about either getting started in your retirement plan or if you're looking to revisit your retirement plan, you have the retirement resource sent to you.
25:33 It's a one stop access to JP Morgan asset management and Chase Insights tools resources to help you achieve your financial wellness goals.
25:43 So, I'm going to go to it now in a second, but from short on demand video. videos, articles, calculators. This hub has a variety of educational resources at the retirement ready, so if you have not already gone to it, when you go in here as mentioned there's going to be some short videos based upon
26:02 your working phase. So whether you're starting out for the first time, you're on your way, nearing retirement, there's some short bite size videos that'll help you and give you some good content.
26:13 And then going below there's also some additional webcasts that we've done in the past so you can cast the replay place.
26:19 You know, but I want to bring your attention to the bottom of the page here where we have some great resources, some great articles, um, a lot of the material, when it comes to the guide to retirement slides are here available within the seven principles for successful retirement.
26:33 And we also have the retirement calculator on the right hand side. So when we are exploring what we're able to do and how we're able to kind of get together and do that plan, there's some great calculators that are available here and you know one I do want to call to your attention is the monthly
26:49 budget calculator. Where you can go in by launching this calculator you can go and then put in, you know, of course it's going to take time, you have to have the patience, put pen to paper, sign in to a few different accounts, figure out what your spending is on a regular basis if you haven't
27:08 already, but you could plug it in here, so putting in how much money you're making then put in what your essentials are, you could put in all the costs there on the side and then it'll tell you what your projected expenses are and then how much you have left.
27:24 So this is a great starting point if you haven't already gone to it, so certainly check out. Now what I will mention, I'm going to go back to the presentation here.
27:34 And again Alex, I want to thank you for your participation. Continue the great work and we look forward to having you on again soon.
27:44 And for those of you who are attending now, thank you all for taking the time to join us today. As a friendly reminder at the end of this webinar, you'll be redirected.
27:55 To the retirement resource center, so if you have questions on how to access, once you get out of this webinar, it'll automatically direct you to go into there so you can bookmark it, save it on your favorites and whenever you need to, you could always access the website.
28:10 There's no login necessary. Sorry, so you could explore JP Morgan, the calculators, the insights as well as recap some of those principles that I covered just now.
28:20 So with that, thank you all for taking the time to jump on to today's session and please stand by for the following disclosures.
28:31 Opinions and estimates offered constitute our judgment and are subject to change without notice as there are statements of financial market trends which are based on current market conditions.
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Take Control of Tomorrow by Saving Today
Kenny Obeso, Retirement Education Consultant, and Sharon Carson, Retirement Strategist present tips and explore online tools to help you learn how to achieve your savings goals.
All right. Thank you for standing by. Unless otherwise stated, all information referred to in this presentation is as of October 19, 2023. This call is being recorded. And all or part of the audio portion may be used for a replay or other J.P. Morgan purposes. If you do not wish to attend or be included in the audio documentation, please disconnect now or remain on the line in listen-only mode.
Good afternoon, and thank you for joining us today. Welcome to our retirement webcast. I'm Kenny Obeso, a retirement education consultant for J.P. Morgan Retirement Link. And today, we are joined by our very own retirement specialist, Sharon Carson. She plays an integral role in our flagship guide to retirement material. And I'm excited to have her join, to bless us with her knowledge around retirement. She'll be focusing on important retirement planning considerations for today that could help us live longer and financially stronger during those retirement years.
So with that being said, I want to start today's conversation talking about the importance of saving for the future. In order for us to save in the future, we need to focus on what's going around us today. We all know that the cost of living has been going up due to inflation.
I know, personally, when it comes to cost of living, a few weeks back my son was preparing for his driver's road test, and this is something that we knew was coming along, but here's what I didn't think of. The cost that it takes to have the lessons and the six hours behind the wheels. The extra gas that we have to pay because now my son is practicing and using the car more often. And not to mention, the car insurance premiums of adding another driver in the house. So this is just an example of a lot of situations that may be happening in our day-to-day lives.
So Sharon, this is where I want to bring you in. With so much going on, what are important considerations we should be entering in our retirement GPS coordinates?
Thank you so much, Kenny. Let's take a look at our next slide. It's really, the basis of how to think about this. I think a lot of people do get very caught up in what the market is doing, and what it's going to do. But the fact of the matter is, you have no control over that, and you have no control over what the government is going to do, either. You have some control over how long you work, and how long you live with your health habits, but putting you in the best stead for your future self, envisioning that future self, the best thing that you can do for that future you is to focus on how much you're saving versus spending.
And there are definitely challenges there so we'll talk about thinking about prioritizing and where to start, and then asset allocation and location. That just means, what type of account are you investing in, in more simple language. So that's what we're talking about there. And we'll refer back to this chart as we go.
And then, our next slide really talks about that savings point. And how do you even know if you're on track? And Kenny, you mentioned the GPS. And I call this-- for those of you who are maybe old enough-- the old fashioned paper map. This is just going to say, are you in the general vicinity? It's very quick and dirty. Kind of, are you in the right ballpark?
So if you're 40 years old, for example-- I'll just walk you through an example-- $50,000. Right here at the intersection of $40,000 and $50,000-- oh, perfect. We have the red box coming in there.
1.4 is the multiplier. 1.4 times $50,000 is $70,000 to have saved to be on track so far. And you might say, oh, I don't have nearly that much. And one of the questions I would ask you, well, are you saving more than 5%, including any company match? If you are, you might be more on track than you think.
We had to use general assumptions for people. That's why we didn't do the math. We didn't want you to make you think it was super exact. We have the years in retirement. A primary earner and spouse for Social Security ages 65 and 63 retirement age. But if your situation is slightly different, there might be some good calculators that you can use to personalize it for you. And I think Kenny's going to try to show you one of those towards the end of today's session.
So that's really, the GPS. And that's the personalized version that can reposition if you hit the pothole, the road block, you want to take a different route, that GPS version, you can keep revisiting it and really get a sense of where-- much more pinpointed on where you should be and where you're going.
And then if we take a look at the next slide, we also have this for higher income levels. So same kind of math. Same kind of thing. We are assuming if you're making at least $100,000, you're able to save at least 10%, including any company match. Once again, age 40, you're making $100,000 as a household. 2.5. You have roughly $250,000 saved so far.
So that's our way of thinking about, hey, this is one thing that you can control here. How much are you going to save?
That's great, Sharon. And when you look at this chart and you put it together, if you're thinking, well, maybe I'm not there yet, or maybe I need to start saving more, the reality is all households, we have priorities that are competing for the next dollar. So you're mentioning that GPS and it's like my son getting a license now, the very next step is buying a car. And it may feel difficult to save for retirement. And you could tell that this car situation lives rent free in my mind right now. So with all these things moving in our lives, how should we prioritize savings?
Right. And that's a really good point. Let's take a look at the next page. And we actually have a chart on this. And one thing that you know, if you're building a house, and you want a strong retirement house for your future self. You want that retirement house to be solid, or just financial freedom in the future, if you don't like the word retirement, but you'd like the ability to walk out if you want to someday, the solid foundation starts with emergency reserves. We'll talk about how much you may need there, but that's really where you start.
This is a little controversial because some people may say, hey, you should really save in your plan first if you have a company match. And I would be hard to argue with that. So it's the question of, do you put the employer match-- getting that first or the company reserve?
Some of you may have the health savings account. I don't think many employers match in the health savings account, but that's that type of health savings account that's paired with the high-deductible plan that is qualified-- and qualified is a key word-- so that this is the type of account that lets you actually keep going-- like, the money can stay in there, and it could even stay in there for your retirement. So that's different than some of the other types of health accounts that we can save in.
And then a lot of people say, shouldn't I be paying down my student loans first? This is a common question. And we think not so much. First of all, you definitely want to save for emergencies and get the match. Then, if you have a really high interest rate loan. We know a lot of those student loans are lower interest rates. So we think, not yet.
Of course, you have to make your payments, if you have to. But you shouldn't look to do more than that unless you have a very high rate loan. And then after that, then you can do more retirement savings or more in your health savings account. And if you're doing all of that, and you've totally maxed out, then you can look at paying down your student loans more or saving in other places when you're thinking about retirement savings.
So that's really the message here. And, of course, you do have control over which accounts and which things that you save for. And maybe that car-- I'm sure you have a choice-- are you going to get a more expensive or less expensive car?
And you can think about balancing that with prioritizing your other savings. We just went through that, too, and we prioritized the lower-priced car. So I know how that goes. And then-- because cars got really expensive these days.
Now, let's take a look at emergency reserves, and how much are you going to need. There's an old rule of thumb that said you need three to six months of your pay for emergencies. That is daunting. That is really daunting.
So here we de-identified some of our Chase Bank data. So we don't know who anybody is. No, we don't care. We don't want to know who they are. We just want to see how they're behaving as a group right.
And one of the things that we were looking at is spending in income shock. So if you lose your job, or you have a big spending spike that's a significant spending spike, what kind of an emergency reserve is going to cover most of those situations? And it's two to three months of net pay. So after your taxes, like what's coming into your account, it's two to three months, which is a lot, but it's not three to six. So it's a little bit more doable in terms of that.
And I know also, Kenny, you talked about what if I'm not there yet? How do I get started? Because I actually had one person come up-- and she was a fellow employee, actually, a young person. And she said, oh, I feel so far behind. So she was frozen. She didn't do anything. And I was like, just get started. Can you do a little bit?
And that's kind of the next-- point of the next slide. Don't feel like you have to take off and bite everything all in one chunk. So let's take a look at our next page.
Here, we're just-- you can start out at a low level. Like, if you do a 3% contribution, and you-- it also depends on how you invest. If you start out with a three, and you just stay with it, you can be at that lower level. It's great to have $880,000 for retirement if you're starting at 25, doing that 3%. That may not sound so bad for some people.
But the other two people here, or the lines here that we're showing, the green line, it escalates. You're starting out at 3%. This is the benefit of compounding and starting early. So that's how the $880,000 came into play. By just contributing-- starting salary of $50,000, you're going to get a little match. So you have a little contribution here-- your 3% of your salary. You're going to get some raises.
But if you start out at 3%, and then the next year you do 4%, and the next year you do 5%, up to a 10%, you can get almost as far as the person who had a 10% contribution to start with. So the most important thing is can you get started? Can you look for opportunities later in your life to bump up your contribution?
Some employers will offer to do that for you automatically. But if they don't, can you think about it when you get a raise, or you have some extra ability to do this, can you escalate yourself? So this is something-- it's just really important.
Even if you can do a little bit at a younger age, you'd be surprised at how much that can snowball. That snowball just keeps getting bigger and bigger and growing and growing the longer it goes down the hill. So that's what you want to aim for here.
And then I think-- the next question is I mentioned the control and what type of an account. That's one of the things I said you have control over is how you invest and what type of account. Let's really look at account types next.
I think this next page is important because Uncle Sam can take a bite out of your savings or your salary. And they--and Uncle Sam usually takes the bite in the beginning or at the end. One exception is the health savings accounts.
If you have those qualified, as I mentioned, qualified health savings accounts that let you keep the money in there, even for your retirement health care, that is triple tax free, the best thing ever. I say the best thing since sliced bread, that old saying. The health savings account is wonderful if you have that available. And if you can fund it a little bit more than what you're actually going to spend for health care, that's even better.
So the next thing is the pre-tax. And pre-tax is-- just means Uncle Sam is going to give you a break. They're going to give you a break up front. They're not going to charge you taxes on it up front. Your investment growth-- the pluses are good here. The plus means the investment growth is tax-free, provided you follow all the rules and don't take it out until you're 59 and 1/2 and all that good stuff.
And then the withdraws, however, they're going to tax that at ordinary income tax rates. What does that mean? It means we're going to tax it just the same as if you earned it by working. So just realize they're going to tax you when it comes out. Maybe your tax rate will be lower in retirement-- something to think about there.
And then Roth is the other way around. No tax break up front, but the plus is at the back end. You can take the withdraws out without paying the taxes on those. And then occasionally, you might have the opportunity to do some nondeductible contributions. But you really want to consider that only if you've totally maxed out all of your other savings opportunities in your accounts.
So this is-- thinking about Uncle Sam, how do you know which one to do? It's like-- let's take a look at that next. So we know Uncle Sam usually takes the bite at the beginning or the end. When is it best to do which one? Well, there's a rule of thumb and two exceptions.
So the rule is R, the rule in the left. If you are young, and you are not a big wage-earner. But you think, hey, my wages are going to grow. My career is going to advance. I'm going to make more later in my life, Roth is for you, unless you really, really have to have the tax deduction in order to be able to save.
Generally speaking, the rule is you're young. You're in a low tax bracket. You're not paying much in taxes. Roth is great. So that's the general advice there.
As you get older, if you're making more money, you may want to switch over to the pre-tax. Now, the one exception to this-- and it applied to me. Because I totally believed in retirement savings my whole career. There was no Roth when I was young. The account type didn't exist. I couldn't do Roth. So all my money is sitting here in the pre-tax account. It's all going to be taxed in retirement.
You don't want that to be the only account. What do you lose? If all of your money, you have nothing else saved anywhere else, is pre-tax, when you withdraw that, you have to pay the taxes on it, and then you have to withdraw more to pay the taxes on that. So you don't want to be that the only money that you have right. So that's why mixing it up and having some Roth and some pre-tax will give you more control.
You can't control tax rates that Congress is going to put in place. But you can kind of control, if you have different account types and different account types to pull from, you can kind of control what bracket you might land in a little bit. So that can give you more control of your taxes in retirement. So thinking once again of that future self.
And then the second exception is, well, maybe you retire, and maybe you haven't even taken your Social Security yet. You don't have to take any of those required distributions out yet. It might be a great time if you're in a super low tax situation to convert some of that money.
When you convert, you just pay the taxes. You're in a low tax bracket. It might not be that bad to pay the taxes and move some of your pre-tax money over to the Roth money. And generally, on those really low-tax years is when is the best time to think about that.
And with that, I think I'm going to turn it back over to Kenny so he can show you some great other resources and tools.
Yeah, great. Thanks, Sharon. And I really enjoyed the discussion that you had talking about the importance of first setting up that emergency reserve fund and how critical and important that is for us to even start thinking about the next steps.
And so kind of what I've been hearing so far from what you've mentioned is first, focus on what you can control. Have that plan set in place. With a lot of moving things going on in our lives, let's understand, well, what can I control? The budget. How much am I able to save? With that monthly budget that you have set in place, how do I prioritize those savings dollars like that emergency reserve fund, and then taking advantage of those available tools.
So you touched on that pre-tax and Roth. And I'll tell you, Sharon, that when I go out and I do these retirement sessions, that's a very common question that I ask for those plans that offer and allow Roth. It's well, how should I be saving? And I'm glad that you were able to break it down in a way that's understandable.
And even if there are any other questions, one of the tools that we have at our disposal is the Retirement Resource Center. So if you have not already gone to the Resource Center, it is a great place for you to go in and see all this information, all the great information that Sharon puts together with her team and some additional tools and calculators that are available.
So with some of the time that we have available now, what I wanted to do is kind of explore that Retirement Resource Center a little bit more, and taking into consideration some of those notes that Sharon mentioned. So I'm going to pull up here the website.
Again, if you haven't already gone to it, this is the Resource Center. It is newly refreshed and updated. So the layout may look a little bit different since you previously went in. And if you scroll to the bottom, you'll see right in the right-hand side, Retirement Calculators.
So if you go into those retirement calculators, you could see savings, spending, and planning calculators that are available to you. And there is a large amount. So if there are questions that you have going in, you can go in and use this to make those decisions.
And what I want to do is call out the savings calculators. Because, Sharon, you mentioned how important putting that budget is in the very beginning. And if you haven't already done so, this is a great tool you can go in, plug in what your expenses are on a monthly basis-- what that looks like for you.
And the reality is I know we always want to save as much as possible. And at times, we could find great potential pockets of savings if we explore our spending as well. And I know I'm guilty. I'm guilty of it.
So sometimes looking into the budget and seeing how much gas am I spending now that I have a son who's driving, maybe we need to limit or consolidate the amount of times we're going in and out of the drive-through-- or the driveway and maybe do it all together. Whatever that may be for us, this is a great calculator to help do that if you don't have that budget set in place.
We also have this pre-tax versus Roth analyzer tool. And this is something I do want to open up so you could all see if you do have that question in your mind, well, should I be saving pre-tax and Roth, within this calculator what it does is it takes into consideration all the inputs that you're putting in, and it'll tell you, well, what your estimated tax liability would be as it's going in and as it's coming out.
So let me just create an example in a scenario here using this calculator. We can see on the left-hand side, these are all the functions we can play around with and plug in. So if you go to current age, for example, and let's just-- let's use somebody who's maybe in their mid-40s, and they're planning to retire.
Let's go a little bit sooner than that. I know my father currently doesn't know what retirement means. So for that-- it's going to be different for everyone. But we use here a retirement age of 65, and we're planning to use that money for 20 years. Here's an example of a salary. We'll plug in here an annual salary of just, as an example, 70,000, how much they're currently saving, and their expected return.
So using these assumptions, the very last slider on the bottom is what your current tax rate will look like when you withdraw. And this is where Sharon brought in that great information, well, it all depends. If you are currently now working, and you're in a higher tax bracket then when you're going to withdraw the money, you could see that there's going to be an advantage to pre-tax because you could lower your current taxable income now.
And then during those retirement years when you're not working, you could be potentially in a lower tax bracket, have that tax savings where you could spend it on whatever you're doing during retirement instead of having to pay taxes. And that's represented here because we could see in the withdrawal the taxes in yellow is smaller than the in-going taxes.
Now, on the flip side, if you are in that situation where maybe your tax situation is different, you could see how this calculator will change. And ultimately, you play around with this, and this gives you a great insight into how this works. And this is something that you could use and leverage as you like.
In addition to this, I mentioned before, going back here, there's additional calculators as well. So if there are any other obstacles that you have in your life or great things coming like a new car, which will always bring up in the next month, or maybe it's buying a house, or maybe it's an addition to the family-- whatever these life situations are, how do you navigate it? And this is a great resource to do that.
So what I want to do now is go back to the presentation. And we went over a lot of great information and a lot of great material. Sharon, I really want to thank you so much. There's so many things we need to consider when it comes to retirement planning. It's been a pleasure having this conversation with you. Thank you so much for your time.
And as a friendly reminder, at the end of this webcast you will be redirected to the Retirement Resource Center. So with this website, there's no login necessary. You can explore JP Morgan's retirement calculators.
And in addition to that, the proprietary insights that are there, as well as recap. There's some great material there, like the Principles for Successful Retirement. And a lot of that information is what we covered in today's session as well. So with that, thank you, everyone. And please stand by for the following disclosures.
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