Pastor Plek's Podcast
Pastor Plek's Podcast
Biblical Financial Wisdom with Jake Ridley
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302: How will the Federal Reserve's interest rate decisions impact your financial future? We bring back Jake Ridley from Astoria Wealth Management to offer expert insights on navigating the potential rate cuts by the Fed and their implications for your capital campaigns and loans. Alongside Catie Sas and Pastor Plek, Jake breaks down the role of Jerome Powell and the ongoing challenge of balancing inflation and employment. We also dive into the ripple effects of these rates on housing prices and asset values, especially in the aftermath of COVID-19.
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And welcome back to Pastor Plek's podcast. I'm your host, pastor Plek, welcoming you to another show that you are going to truly enjoy. Katie Sass, I'm so glad you're here to join us. I'm so glad I'm here. Yeah, and then also back once again is Jake Ridley, a financial planner with Astoria Wealth Management and really grateful to have you back. Love your perspective, love your perspective on all things money managing, and we're going to get right into it. The big question on my heart, which should be on yours, if you're all about capital campaigns and getting loans when is the Fed going to cut some rates? Jake, tell us the answers.
Speaker 2We don't know, but most people think towards the end of the year. Um, today we just had an inflation reading that came in a little bit lower than what was expected which is good for those of you like sounds like yourself yeah.
Speaker 1Well, the church is trying to get this loan and we need, you know us to have raised enough capital, the loan rates low enough that when we go in it's like one big happy.
Speaker 2So the good news is, yeah, the end of the year is kind of the consensus of when they'll start lowering rates, kind of. The bad news maybe for you is it's not going from five back to two.
Speaker 1It's going like five to 4.75.
Speaker 2I feel like this has kind of been a train wreck.
Speaker 3It's like you just can't look. This has kind of been a train wreck that it's like you just can't look away.
Speaker 1It's been a long it's been a long long time, but you know that's the Lord, right he he, do you not?
Speaker 3feel that way sometimes, or am I just like the outsider that? Oh, I just totally see it.
Speaker 1Like God gave. It's not like we had to really do anything other than be here so I can receive it. It's difficult for us to wait, but it's all part of it we need about now. All goes according to plan with loans and everything. We just need about another $140,000 or so-ish yeah, give or take $140,000.
Speaker 2I thought you were referring to the Fed being a train wreck.
Speaker 1I was like we're really going to get into it, but the Fed being a train wreck, I was like we're really going to get into it, but the Fed is a train wreck.
Speaker 3I don't even know who we're talking about.
Speaker 1Okay, real quick. Talk to us about Jerome Powell, Jake.
Speaker 3I just want you to know that this is my expertise Financial planning and finances and budgeting.
Speaker 1This is my area Like wheelhouse, crush it.
Speaker 3I know a ton about it.
Speaker 1Yeah, so talk to us about who Jerome Powell is and why we should care.
Speaker 2He's the Federal Reserve chairman and the Federal Reserve sets interest rates why do they have that power first off? Okay, it's ask you that, oh gosh, why do they have that power? It's to maintain stability right in the financial system but is it stable?
Speaker 3Is there stability?
Speaker 2Well, that's the argument right. But you know, one of the takeaways from history of the Great Depression was that the Federal Reserve was too tight. They weren't allowing people to borrow money as fast as they should have. Which lower interest rates does that? People borrow money more frequently the lower their interest rates are.
Speaker 1But hold on On lowering interest rates. Doesn't that affect a bank and how much money it can make?
Speaker 2So it's like really regulatory, yeah, but they keep their spreads pretty because they lend out money. So in theory, yes, but there's all sorts of practical reasons why that makes sense. So the bottom line is it's just the speed at which people can borrow money which can stimulate the economy. People build houses faster because people can borrow money, and we saw this during covid, right, interest rates dropped to basically zero and you saw housing prices go through the roof, right. That's because people could borrow at much cheaper rates, so it was a lower monthly payment than it otherwise, right, you know, would have been right what yeah?
Speaker 3go ahead, so lower rates. That was the reason houses were being sold for like double than what they.
Speaker 2That was a big reason.
Speaker 1Yeah, because they knew that the people buying could get more money.
Speaker 2Yeah, totally. I mean most people when they go to purchase a house, look at the monthly payment right.
Speaker 3Yeah.
Speaker 2And so the lower the monthly payment. So interest is a big component of the monthly payment on your mortgage, and so if your mortgage payment is lower, that means you can buy a bigger house, right. And so that means you can buy a higher-priced asset because interest isn't as high.
Speaker 1Right.
Speaker 2So it can inflate the values of things. That's one of the reasons I mean work from home was a big reason yeah.
Speaker 1And people need to invest in their house, and now I have a home office that I have to.
Speaker 2Yeah, there's lots of different reasons, but that's the general rule. The lower the interest rates are, the higher asset prices go. Assets meaning homes, anything you've got to borrow money for which is most things, even cars.
Speaker 1You sell cars.
Speaker 2Right. Shoot the prices. Use cars Increased in value Right During COVID when that doesn't happen.
Speaker 1That doesn't you always think once you drive that car off the lot it's going to lose value. No, it turns out it's going to appreciate it Right, At least in that time frame. All right. So when we talk about the things that the feds will get, inflation is one, Is it jobs is the other.
Speaker 2Stable employment is one of their mandates. Yeah, and so yeah, but they can be in conflict. It's a tough mandate that they have, but the bottom line is they're supposed to keep things. They're supposed to grease the wheels of the economy and make sure that money is continuing to flow through the economy, that things don't seize up it seems to me.
Speaker 1This is the part that I don't fully understand. It seems the only lever drone pal has to pull is the um interest rate yeah, and that's a huge.
Speaker 2That's a debate on. Is this really? Or is inflation coming down because the fed raised interest rates? Or is it just because supply chains so it's definitely not as simple as interest rates go up Like it's not?
Speaker 1that the world doesn't work that simply, it just seems like it's just such a you've got one job.
Speaker 2It's a blunt instrument. It's a very blunt instrument.
Speaker 1It feels like yeah, I've got this big sledgehammer and give it a whack.
Speaker 3Well, I feel, got this big sledgehammer and give it a whack. Yep, I feel like they're just having a bad day and let's just make it suck for everybody else.
Speaker 1Yeah, that's how some would take it, that's for sure. All right, okay, let's talk about this, because we're talking about money, especially when things get tight, and retirement. We talked about this a little bit last time, and the big question that many people have is is it okay to save for retirement, katie? What do you think?
Speaker 3Why would it not be okay to save for retirement?
Speaker 1I'm just curious. You need to spend it all YOLO. I don't know what would you think is when I say save for retirement? You're like thumbs up on that.
Speaker 3Well, the live recklessly side of me says don't save for retirement, just live for like. You don't even know if you're going to be alive at 50.
Speaker 1Like you have no idea, right.
Speaker 3And so why would you save so much money to live well as an old person when you don't even know?
Speaker 1When you can live well as a young person. You could live well right now because you're alive.
Speaker 3But then you know the wiser, more logical side of me that doesn't. It's not as loud.
Speaker 1Right as my live recklessly.
Speaker 3side Says well, do you want to live in a cardboard box when you're 60 years old?
Speaker 1Yeah, so how does Ryan, does he help manage that?
Speaker 3for you. He's a saver.
Speaker 1Okay, and you're the spender, yeah, and how does that work out? You know, he's just like.
Speaker 3I don't touch the phone, I don't you just like hey, give me my.
Speaker 1Do you do it by the cash system?
Speaker 3No, Um we. What's his name? Ramsey.
Speaker 1Dave Ramsey Dave.
Speaker 3Ramsey yeah, we appreciate him, but he doesn't.
Speaker 1We don't do the.
Speaker 3We have credit cards. He's anti-credit card. We have a credit card, but we pay it off every month.
Speaker 1Sorry, it's okay. Yeah, so I think that's how most of us Well, I don't say most of us, that's how at least I operate Talk to me about what most people should be doing, and I know most people is probably the worst thing to say, but, generally speaking, here's what the majority of people do.
Speaker 2Generally speaking, you want to be saving 10% to 15% to maybe even 20% of your income towards retirement and retirement being your 401K, 403b, individual investment accounts. You know, inside of those accounts there are investments, and so most people a target date fund is a pretty good option. A target date fund is it'll ask you what date do you expect to retire, and so if it's 30 years from now, then you'll pick the target date 2055 fund and, uh, again, the general rule of thumb is the younger you are, the more risk you're able to take and the more and risk and return are linked at the hip yep so the more risk, which is volatility, the more it goes up and down, the more return that you'll make, and so that generally means a portfolio of stocks.
Speaker 2So stocks are ownership shares of individual companies in the US and a target date fund will have tens of thousands of those companies inside of it. Fund will have, you know, tens of thousands of those companies inside of it, and when you're young it's more stock heavy to the tune of you know even 100 stocks, zero percent bonds, and then they reduce the stock and bond or they reduce the stock exposure as you get older, right, and so if you're retiring 2055 and we get to 2045, the fund used to be 90 stocks 20 years ago. Now it's 60 stocks, 40 bonds. So all that to say 10 to 15. If you're young, you know 25 or 30.
Speaker 1That's a good rule of thumb to start saving when you talk bonds and I know I'm about to get out of my depth um, but when you talk bonds, are you talking about like bonds, like obviously government bonds, but like city bonds, like I'm gonna buy the municipal yeah, detroit bonds total.
Speaker 2So bonds as a whole include everything from the government lends money in the form of bonds to companies, to municipalities, like you mentioned, and that's what's considered the bond market right. So it's made up of all of those. So you're real quick. Yeah, um, ava would like you to know and that's what's considered the bond market Right.
Speaker 3So it's made up of all of those Real quick yeah, ava would like you to know that she's four.
Speaker 1Okay, I appreciate that, ava Okay.
Speaker 3She's been telling me, to tell you that for the last 10 minutes.
Speaker 1Ava, are you four years old? Oh, that's very exciting. I love your shoes too, Ava. Those are some good looking sparkly shoes.
Speaker 3Like the whole time she's been circling me. She's like will you tell them I'm four? Will you tell them I'm four?
Speaker 2Did she just turn four?
Speaker 3She turned four on Monday.
Speaker 2Hey congratulations.
Speaker 3She's like she wants everyone to know.
Speaker 1Well, that's good, hey everybody out there. Ava is now four and she's been thumbs down on the bond market and I don't really know why.
Speaker 3A bond market.
Speaker 1Bond market so you buy into. Detroit is raising money for something.
Speaker 3Why do we care about what Detroit's doing?
Speaker 1I don't know.
Speaker 2I just threw out a crappy city Because they pay you money. Yeah, you lend them money and they pay you interest. Detroit does.
Speaker 1Yeah.
Speaker 2The whole bond market does, the whole world does.
Speaker 1Yep, so you give them.
Speaker 3I've never even heard of a bond market.
Speaker 1I know that's why we're here. So let's say, you can buy a school district right or buy into a school district whatever proposed bond.
Speaker 2I think you invite me on to the least listened. Last time we were talking about pastor opting out of Social Security and now we're into the bond market.
Speaker 1All right, sorry, into the bond market. Nobody really cares about it, but I find it fascinating because it's one of those things I just found out about and now that's all I can think about, so it went down in value the most it had ever gone down in value the bond market did in 2022.
Speaker 2And that's because the interest rates went from zero to five, which you would think, well, that's good, right. Higher interest rates better, that's great for new bond. I mean, that's great for bonds that are new, but you're sitting there holding a bond that is got a one or 2% interest rate, and now there's a 5% interest rate bond dangling out there. You're one or 2% drops in value, and so that's why 2022-.
Speaker 1Can you get out of a bond? Yeah, you can sell it. It's just like it's like a stock.
Speaker 2Yeah, you can sell it and take a loss and so 2022 was the worst bond market in history, going all the way back to the 1700s.
Speaker 1So that's why. That's why Okay, that's why I've heard Don't do bonds, yeah.
Speaker 3Okay, all right, we'll get off.
Speaker 1You have the best questions.
Speaker 3Well, I don't know that you're going to think it's cool or not, but so I am. I work for a company called Monet now and it's like a hair care, like beauty company. Do you know? Have you ever heard of it? No, okay, this is good, because I didn't want you to like, have that look on your face of like, oh, where are we going?
Speaker 2Does it have a reputation?
Speaker 1Oh, oh well well, you know, it's one of those like multi-level marketing okay, got it. And so some people like hate it and some people but like, get off, get out of here with them, but it's not, it's not actually the product. This is an elaborate pitch well, so they really called you in here for with this.
Speaker 3Yeah, go ahead so they just started this thing where, like you can uh, if you like get to a certain rank in the company, you can have a share of the company. But it's a private company.
Speaker 1Right.
Speaker 3And so, like when Ryan first heard of it, he was like this is stupid, like you can't have a share in the company because it's not a public company. But like they're using it as like a bonus program, so like but like everyone within the company is like no, it's real like, and so every quarter, depending on like, how many shares, you can get up to two shares in the company. Like it's like a almost a billion dollar company are you able to cash out?
Speaker 3um, well, you get your. You get like ten thousand or four, I don't know. You get like $10,000 or $4,000. I don't know. You get like thousands of dollars every quarter if you're at a certain rank.
Speaker 1Nice.
Speaker 3Depending on how many shares you have, but I don't know if that's money, like you're getting paid money, or that's how much a bond is, or a share is. No, you now own a piece of that company.
Speaker 2And so now you're entitled to the profits of that company. And so if monet generates a million dollars in revenue, you know, in a given time period, yeah, and it costs them eight hundred thousand dollars to generate that revenue. So now there's two hundred thousand dollars of profit, then you get a share of that profit. And so they've got to decide whether there's probably some agreement or some stipulation on they can either issue a dividend or they can reinvest that profit back into the business to grow it more. Right, does that make sense? So you should get some cash flow.
Speaker 2There should be some cash that gets generated off of it, which is called a dividend. But to his point, on selling it, that would just depend on if there has to be a buyer. But there doesn't have to be an outside buyer.
Speaker 1There can be inside buyers. Wanting to take over the company or get more property. Just want more shares.
Speaker 2Yeah, more shares all right, so back to this retirement thing tell me about?
Speaker 1is it okay to save for retirement? That's the big thing like? Is that hoarding, when you should just give that money away and trust jesus or what?
Speaker 3wait, give it away. Why would you give it away?
Speaker 1To Jesus, because he's got, isn't that what the Bible says.
Speaker 3So wait? You're saying don't save your retirement. I'm asking the question. You're saying give your retirement, why not?
Speaker 1give it? I'm just asking the question here Because some people eat their retirement, some people give their retirement, some people save their retirement.
Speaker 2So yeah, I've that it. You know, I've heard christians wrestle with whether it shows a lack of faith for saving.
Speaker 3If saving for retirement shows a lack of faith, that you're not trusting god for provision 30 years right now, or what, whatever okay, and so then they would say well, saving for retirement is is bad so they don't see that as like you're just being wise with your Some don't.
Speaker 1It's like hoarding. It's probably the same people that only shop at Goodwill and think if you buy any other kind of clothes that you are in sin.
Speaker 3Oh wow, there are those people.
Speaker 1The minimalists, I mean, there are those people.
Speaker 2That's usually a reaction. In my experience it's usually a reaction to maybe a family member or just know people that are living the American dream retirement, which is John Piper's version. He's got his famous sermon of collecting seashells on the seashore and playing tennis and that sort of thing.
Speaker 3What's his thing? Is he one of those? Don't waste your life.
Speaker 2Don't waste your life was his big-.
Speaker 3Oh, so he thinks saving for retirement is no?
Speaker 1No, no, no. He just says saving for retirement, so that you can only go walk along beaches and collect seashells, is a waste.
Speaker 2And so people that have what I'm saying is people that have seen that react all the way to the other side and say I don't want that, so I'm going to not invest for retirement because it's bad Right, because that's a bad Well, isn't there a middle?
Speaker 1That is a middle, so talk to us about that middle.
Speaker 2So I don't think it shows a lack of faith. Otherwise I wouldn't have a job Right, Because that's what I do is help people get to retirement and then stay in retirement.
Speaker 1Listen, spend it all. I'll take some of that right now. Here's your fee, yeah.
Speaker 2But no to your point. It sounds like you've read the Bible. So the Bible talks about that right, that the ant saves up and doesn't consume everything, that he saves up some for the winter, when he's not going to be as productive. And so that's. The principle is that you're generating this income now based on your productivity, your productivity, and you're probably not going to be as productive at 70, 75, even 65 as you are today at, say, 35. And so the principle is okay rather than consume everything that I produce today, I'll save some for whenever I'm not going to be able to be as productive, and then I'll spend it Well, because everyone sees the ant as wise, like in this story.
Speaker 3Right, the ant is the wise one and the what is it isn't the grasshopper, the one that's like mows through it like the the locust?
Speaker 1maybe is it the locust like which.
Speaker 3What other? What what's?
Speaker 1the other, what other it's?
Speaker 3like making fun of the ant for like working.
Speaker 2I think the ant and the grasshopper. Is that Aesop's? Yeah, I think we're now in Aesop's Fables. Oh, is that not? Is that not what we're talking about? But it's the same thing, it's the same principle.
Speaker 3I mean, what other story are we talking about?
Speaker 1There's a proverb A talked about, but we were talking about. There's the the proverbs about the ant.
Speaker 3Hey, I'm impressed when. Oh, I only know about it because ryan bought ava the book of like all the fables and whatever.
Speaker 2So we read it together but yeah, people naturally know this, even like even the christian. That would say it's a lack of faith. In my opinion, you. The example that I use is most people get paid once or twice a month, even the person that takes the stance that you shouldn't save for retirement. It's a lack of faith. They don't go out and spend their paycheck. They get paid on Wednesday and they spend it all by Wednesday night and then expect God to provide for them for the rest of the month, like that's pretty obviously foolish. So it's the same concept, just rather than spread out over the month, it's spread out over decades.
Speaker 1Okay, so let's, let's talk about that.
Speaker 3I feel like as long as you're giving, then like who cares what you're doing with your retirement?
Speaker 1Well, yeah, that's a I yeah, but I think that leans. This is where he would say I'm going to speak for Jake here you'd have to have goals right. What is your goal in retirement? I'm getting this.
Speaker 3Oh, it was attacking me earlier.
Speaker 1I'm not going to kill it All right sorry, yeah, but I think that that's part of it, right? So how do you walk somebody through that just for retirement? Say, here's your 2055 date. Yeah, back plan from there.
Speaker 2Well, yeah, maybe expound on what you mean by giving to Katie when you say if you're giving, isn't that okay?
Speaker 3Yeah, well, because giving is the biggest priority anyways.
Speaker 1And so if you're prioritizing giving, then whatever you Well, talk about why you even know that, because I think that's the part where you just came assuming that and I think a lot of people listening would say no, the number one thing is I got to provide for my family, I have to have a roof over my head or something along those lines. So talk about that real quick.
Speaker 3Oh man. Well, Ryan is the generous heart in our marriage. I'm the spender, but like with giving, I know that like, but aren't you a giver though? I know that my money is not mine.
Speaker 1Right.
Balancing Giving and Retirement Savings
Speaker 3And I know that every single penny that comes into our bank account is from God, and so giving it should be the highest priority. And so if that is your highest priority because you enjoy giving and you know this money is not yours anyways then what does it matter how much you're putting into retirement and how much you're spending? If you're spending rationally to just enjoy your life reasonably, yeah. And then you're also putting a little in retirement because, hey, I don't want to, like I don't want to live in a cardboard box when I'm 60 years old, sure you know. Or like I don't want to. I want to be able to like provide for my grandchildren, like when I'm old and I'm not working. I would love to be able to like provide for my grandchildren, like when I'm old and I'm not working. I would love to be able to have the money to, to spoil my grandkids, you know. But like I don't, I, I just I don't know. Why does it matter if you're already?
Speaker 2how do you balance how much to give versus how much to save, because it sounds like you're not saying to not save for retirement yeah, I'm just saying there's probably there's balance somewhere.
Speaker 1But, like your first priority should be, this might be where you say like I just tell Ryan hey, take care of the money and I'll spend this. But how do you guys do that? What's been your take, Dave Ramsey? What's been your strategy?
Speaker 3We give first, like we calculate that percentage first, and then we save yep, and then we've got the rest of our budget for paying bills. And then, but like each it's not, like, oh, whatever's left, that's what we spend. Like we budget everything. So we have a certain budget line right for what we're gonna so give. Enjoy essentially so like you know, you have your date night budget every month, you have your fun money budget, so each of us have fun money each month.
Speaker 1Do you ever go over?
Speaker 2Yes.
Speaker 3Not like drastically, but sometimes I won't do my math right. And so then Ryan's like he's like babe, you were like 30 bucks over your fun money and I was like what, no, I counted. And he's like well, you didn't count. He's like you're $30. I was like oh, I appreciate that.
Speaker 1All right, so shifting that to that mindset. So there's two sort of ways, there's multiple ways, but there's, on one end of the spectrum, the poverty gospel which is I've got to have as little as possible. I'm going to, we're going to eat rice and beans. We're not going to splurge on steak and wine. We, I'm going to, we're going to eat rice and beans.
Speaker 1We're not going to splurge on steak and wine, we're going to go as little as possible. And then there's a prosperity gospel which is like God blessed me to be a blessing and I'm going to have it all and so I'm going to enjoy it fully, embrace it and live really large. So I think that's the question Both you could say could probably argue. Argue like I'm living the most faith-filled life, um, like I'm in for the prosperity gospel person's, like I'm enjoying the blessing that god's given me. Why should you know god called me to be blessed? Why should I not live like this? And then you've got the uh, aesthetic or the poverty gospel person saying like no, god has blessed me with heavenly riches.
Speaker 3so therefore on earth, earth.
Speaker 1I'm going to live as minimally as possible, not to waste or be in excess in any way. So where do you find that, oh man?
Speaker 3I'm going to give you the middle.
Speaker 2I feel like the easy answer, or the simple but not easy, is you have to read the Bible and be in the Bible because there's different.
Speaker 2That's how wisdom works, is there's not a formula? I think that sometimes Christians, in my experience and just personally, lean more towards the guilt, like money's bad, which is more poverty, gospel spectrum, and the purpose of money is to give it away, right? Or, you know, to feed the poor, or to feed the poor, and that's why God has blessed me and I think personally you can go too far with that and not actually enjoy, like there is a component of God giving you money to be enjoyed. Ecclesiastes talks about it, yeah, and even Paul, you know, in Philippians, when I've learned the secret to be content, whether well-fed or whether hungry. We focus on the hungry and being content in the hungry but he was also well-fed at one point and being content in whatever the circumstance is, and so we tend to think of I need to be content when I'm poor, and that's what it's talking about. But it's also talking about being content when you're well-fed, when you do have prosperity. So it's okay to be prosperous, it's just how do you steward that?
Speaker 1How do you steward that? Right and I always think of it this way At some point you're not going to get paid. No one's going to pay you for whatever job you're doing, so you're paying yourself in advance to do the ministry that God's called you to do in the future.
Speaker 2Yeah.
Speaker 1And I think that's probably the way that I reconcile my thought. Need for retirement is like eventually, I don't want to be a burden to the church or to the government or to anybody other than to the Lord, and I'm going to pay myself then.
Speaker 2Now, the Lord and I'm going to pay myself then. Now, what I would hope that I do I know my it'll have to be spirit filled and not Jake like I'm not gonna be able to will myself to this but just like he provided for the Israelites day by day in the wilderness and that was the point of the manna is that I will recognize, when I start spending money 40 years or whatever it is from now, when I'm not productive, that I recognize that as coming from God, day by day. And so that's the challenge again for me personally. Like when you mentioned that, you just kind of automatically said I know that this is from God's and therefore I'm able to give it away, like, oh, that's pretty powerful, because that's not my knee jerk reaction, right, is that? Oh, this is God's. Therefore, like I'm really open handed with it, like my proclivity is to grip it and hold on to it and save it. And I have to remind myself all the time, right, Like this comes from God, not from me.
Speaker 3So I text Chris Blazel because I was like hey, we're talking to a financial planner guy, what questions can I ask him?
Speaker 1Oh nice, you could have just asked it and then looked really smart over there.
Speaker 3Oh, you know. I'm way too transparent for that. But he works for Gravity, Financial Gravity.
Speaker 2Okay, I haven't heard of him.
Speaker 3Well, I won't tell him, you've never heard of it.
Speaker 2Okay, it's all about to edit this out.
Speaker 1Go ahead.
Speaker 3But I asked him to send me some questions. And since we're talking about retirement, he said what advice would you give to someone retiring today?
Speaker 1Oh, wow, like you're going to retire right now.
Speaker 3Yeah, like someone's retiring today. What advice would you give them?
Speaker 1That's a great question Is that what you would say? Would you ever be like? Oh, I'm sorry.
Speaker 3No, send me some good ones.
Speaker 2So the most've retirements that I've seen are you continue to have a purpose in retirement, so try to find out what that is like, what your this new phase of life is going to look like, whether that is, you know, I'm going to be discipling guys and girls or I'm going to be, you know, at the well, uh, Paul Carlson, I think of him was an elder at the well and I was on staff or was on staff so um.
Speaker 2So just finding your purpose, like figuring out what this next phase of life talk with other retirees figure out, like what are the struggles? Like what are the kind of landmines to look out for? Because the main thing is not financial right, the main thing is behavioral, and a quality of life is not going to come from a retirement account balance. It comes from finding joy and purpose in retirement.
Speaker 3Just like you do Not wasting your life. Not wasting your life, like John Piper says Exactly.
Speaker 2That's it.
Speaker 1Okay. So with that. So you've seen some people. I asked you earlier, like you know who's the guy that you just saw? And they just went. You know they're not homeless because they just mismanaged their money. You didn't see that. But you have seen some people who make a million dollars a year and then they spend a million dollars a year Totally, and so when it came to retirement, it was like ugh.
Speaker 2So yeah. So the second thing I would tell the person that's looking to retire is you got the qualitative side of it, but then you got to figure out the quantitative side of it and so, just like you said, like I've seen, it's usually not an income problem that people have. Most people have a spending problem.
Speaker 2And I've seen, literally seen people that make upwards of a million dollars a year in income and not have much in savings because they're spending it all and so it's usually not an income problem and so um. So it's usually not an income problem, it's usually having an awareness and control of you know of your expenses, and so if you're about to retire and you don't know what that number is like, do I need a hundred thousand dollars a year? Do I need fifty thousand? Do I need two hundred thousand? If you've never answered that, then it's going to be tough to to retire to know whether what you have can support the lifestyle that you want yeah, and I mean imagine 83 000 a month and you're just like I got nothing.
Speaker 1I can't, I got. I have to have every ounce of that, 83 grand yeah 83 grand a month, that's a million a year isn't that wild that's so much money.
Speaker 3That is so much money.
Speaker 1I mean just, I guess my car payment's like 20 grand a month. Nothing I can do.
Speaker 3You know, my house payment's 50 grand a month and I got you know, 10 grand a month for groceries I mean, yeah, oh my gosh, the amount of groceries you'd be able to get with that income a month.
Speaker 2Yeah, totally um okay oh, costco, that's where, dave ramsey like, yeah, it's, it's um popular to poo-poo dave ramsey these days, but he's right on the money in terms of living within your means yeah, oh yeah that's priorities one, two and three for any type of financial. You know, if you come to to myself and you can't live within your means, I can't.
Speaker 2There's nothing I can do, yeah right if, if you can't and that's you know hopefully, part of my job is, if you are having a hard time with that, helping you get to that spot, but if you can't, right like you can't invest your way out of a saving problem right so so yeah so right now, like, um so young adults who are listening, which I'm sure by this point they've all fallen off, but uh, let's say they're hanging with us.
Speaker 1So you're 22 years old, you got a job. Are you going all in on stocks at this point, because you know yellow, why not?
Speaker 2I I like dave ramsey as far as get your emergency fund sure is this an investment philosophy?
Speaker 1yeah, well like just go all in on investment because like it's just stocks and go, you know, bitcoin yeah, let's go bitcoin.
Speaker 2Yeah, do it all. No, so I would say, start with an emergency fund, okay, and so three to six months of of expenses, and so what's funny is you've got to answer a lot of questions and you've got to. You have to know what your monthly expenses are to answer right whether you what the three to six month expense number is. So that is a big like chain can be a big behavioral.
Speaker 2You know change um shift, and then it also forces you to start saving, like you can't consume everything you have if you want to get to the three to six months, and so. So emergency fund um, that's the wall. So if you start investing and you neglect your emergency fund, what's going to happen is the inevitable emergency happens or, at worst, you lose your job, and a lot of times when you lose your job, the economy is poorly. When the economy is poor, your investments are down, and so if that's the only place that you have to go to fund your life, then it's just a double whammy of you're selling things in your investments when they're down, when that's the last time you need to sell them, right. And so the emergency fund is the first place to go and protect those investments. And so once you get the emergency fund funded I agree with Dave Ramsey on the debt stuff when do you disagree with Dave Ramsey? I think his like he came out recently and said that I think he said it was like 8% or 9% was a viable.
Speaker 1Savings option.
Speaker 2Not savings option, but rate of withdrawal from your investments when you retire, that's about double the normal rule of thumb. And he gets that from saying well, the US stock market gets about 8%, roughly 8% to 10% a year, and so, therefore, you can spend 8% to 10% of your portfolio a year. And that's just not how it works.
Speaker 2Like number one, there's no way someone that is 65 and has got $2 million, like you talked about your granddad having number one needs to or can stomach 100% stock portfolio because that can drop 50%. So you're $2 million, now $1 million.
Speaker 1So you go over to bonds where you're getting more than 2%.
Speaker 2Behaviorally, it's not realistic or even prudent to have the level of risk you'd need to support that level of withdrawal rate. But then, two, what happens is when you retire, you're pulling from the portfolio, so you're having to sell things to fund that distribution right. And so every time you sell something, if it's down, say, you have a 50% correction and you're still needing to withdraw from the portfolio, you're locking in that 50% loss on the funds that you're selling.
Speaker 2So, those never get to recover once the market comes back. So that's called the technical term is called sequence of return risk. And so, even though the return of your whole portfolio may come back up, a large portion of it may be gone and can't recover, and so that fast tracks you to running out of money.
Speaker 1uh, if, if that's the the path that you take, if that that happens so whenever you're you're dealing with people, they're thinking about retirement and, uh, have you ever gotten to share the gospel with a client that you're like, okay, you've laid it out for me and you're all your hopes clearly in money, repent, yeah it works just like that.
Speaker 2Are we just?
Speaker 3like only talking about retirement.
Speaker 1No, you can ask another question, but I want to hear this one.
Speaker 2Okay, so the short answer is yes, I have been able to share the gospel with, say, a client that isn't a Christian, but it doesn't happen. Number one, it doesn't happen every day. Sure, I'm sure that's just intensely personal, totally.
Speaker 2But I guess, since you're already in their mess, so, number one, you'll pick up on like because we're so intensely involved in people's finances, like we see their tax returns, we see what they give to. You pick up on people's because when you're dealing with people's money it's like next to their family. It's the most vulnerable personal thing that they have right, and so they'll talk about going to church and so you pick up on where people's priorities are, that sort of thing.
Navigating Risk and Spiritual Conversations
Speaker 2But, on the other side of that. I'm thinking of one client in particular. They'd been clients for a really long time and I'd worked with them a really long time and it was just a slow progression and it wasn't like I. The goal of the engagement, the goal of the relationship, wasn't to share the gospel with them but it just we were talking about their will so like their estate planning yeah and this, you know, lady, was like like one of the examples we have in our estate planning template is do you want any hymns sung at your funeral?
Speaker 2oh, interesting. And she was like, hell, no, I don't want any because. And so she went off on like she's not a christian and doesn't like like Christians and that sort of thing. And so that was like the first door open to where I said, hey, you know, I'm a Christian, not as a like you're offending me, but they really like me and trust me. And so that kind of opened the door to like oh yeah, I guess you are. And so that led to. I guess that led to.
Speaker 2You know, it was like a year or two later like we had a really intense spiritual conversation of the gospel. She went into stories of like somebody had passed away and like she had a vision of of Jesus, like saving her, like all this stuff, and she just, I mean, she was like breaking down, crying, talking about it and so um. So we talked through it, but again it wasn't like she didn't repent, come to faith and there's a happily ever after yeah, story like she's still crazy as far as I know not, but we a believer, but we talked through it, shared the gospel with her.
Speaker 2There's still, you know, trust me and that sort of thing. But I don't know, I think you've probably picked up on. I'm a little bit of a contrarian and not a formulaic person yeah. And so sometimes, I think, we paint this picture of sharing the gospel, which you're great at it, by the way.
Speaker 1Thank you.
Speaker 2Of they weren't saved. We shared the gospel and then they got saved, and everybody happily ever after. And that's just not my experience. It's just more of an organic life.
Speaker 1It's more like I don't know. I'm thinking about it. In fact, one of the guys I'm sharing the gospel with now he's like I'm intellectually there, but I just can't get there with my heart. I'm like I don't know what that means. But let's have lunch.
Speaker 2Yeah. So the short answer is yes, but it doesn't happen all the time. It's not my primary intent to go share the gospel with everyone, but spiritual conversations happen a lot just by the fact of what I'm doing.
Speaker 1All right, Katie, next question you got.
Speaker 3Okay. How do you measure a client's risk aptitude?
Speaker 1Whoa nice, that's a good question. That is a good one.
Speaker 2I was actually just talking about this with one of our other advisors. So the by the book answer is we have to have clients take a risk tolerance questionnaire.
Speaker 1And what does that even mean?
Speaker 3Because you're saying like how much am I willing to lose?
Speaker 2I don't even know what risk aptitude is Totally so risk aptitude is how much risk can you stomach, meaning how much will your account go down before you wave the white flag and say I'm out, get me out. And so, on paper like, what we are required to do is fill out a risk tolerance questionnaire for people, and it's about as effective as you think it would be. Nobody can really answer what their risk Until they have the gun to their head and their account's down to $10,000. Totally.
Speaker 1I can't. What are we going to do? We're going to be in the Great Depression. I'll have nothing, totally.
Speaker 3Wait, $10,000?. Let's say you had $150,000, $200,000 in your whatever account your bank account Like your checking account.
Speaker 1In your portfolio.
Speaker 2Say your target date fund. You're in a target date 2055 fund. You put $100,000 in it and you look up and there's a whole bunch of bad news happening and it's now $40,000. What would you do?
Speaker 1That's really the crux of the question. Do you get out and say I'm just going to hold my $40,000? Or do you go like, ah, it's market fluctuations, It'll come back?
Speaker 2Right.
Speaker 1And then you read an email from Jake and you're like, oh wait, this happens all the time.
Speaker 2The market will come back Totally, but until you've done. But that's the.
Speaker 1Well, that's why I love your emails, because I think you point out like market fluctuation from the 1700s or whatever. And like, oh, do you remember, in this date in history, whatever. And I'm like actually, no, I had no idea that happened and it's really refreshing because whenever I start to freak out, I just take a look at that email. I'm like oh yeah this is all gonna come back. I don't need to beat or, like you know, time the market like getting out. There's nothing new under the sun.
Speaker 2Right, it's been there done that yeah.
Speaker 2So the risk tolerance questionnaire is the buy the book answer, but in reality, what you do is, for example, this person that we were just talking about right before this podcast with another advisor was what is she currently invested in? So look at what they're currently invested in, invested in. So look at what they're currently invested in. Well, how did they react to if they've got a hundred percent stock portfolio now and they had it in 2020 when COVID happened and the market went down 40, you know, 35% faster than it had ever gone down? Um, how did they react to that? And if they say, oh yeah, I got out or I'm just now getting back into the market after the 2020, then that's where you say OK, then they aren't, as, even though the statement says they're 100 percent stocks, they actually just got back into the market after being out for the last three years. So they probably aren't as risk tolerant as they may appear on paper.
Speaker 2And so that's how you do it on the front end. But then, once they become a client, once they are investing with you, there's no way to know until the live bullets, like the bullets, are flying. You really don't know until, and so that's why you send out emails. You coach them. Through it, you get proactive.
Speaker 1That's why you've got to podcast. They need to be listening right now.
Speaker 2Yeah, yeah, exactly it's not if it's when your portfolio goes down yeah, you're just gonna have so whenever the stock market okay what I feel like you probably should have told me.
Speaker 3I feel like you probably didn't want me on this podcast episode, but you were trying to be nice.
Speaker 1I was nice, so did you really you could? You're doing great. That's actually a great question. Do you have another one in there? I?
Speaker 3feel like you had like a vision for this and I'm kind of ruining it.
Speaker 1No, you're not, Because I don't know anything about anything that we're talking about. No, no, it's fine, keep going.
Speaker 2Okay the other question is what are the biggest roadblock? Oh man, Not making enough money.
Speaker 1I don't know, Not making enough money or spending too much right. There's two levers. One is make more money or spend less, right. Yeah, yeah, exactly, or is there another lever?
Speaker 2I mean the first one is. I mean there's kind of a third one, but most people don't save enough, like most people that come to us that are prior to retirement or trying to get to retirement or whatever, need help. They may be maxing their 401k. As a doctor, for example, that's like $23,000 a year, but if you're making $700,000 a year that's not going to get you. So they're like I'm good, I'm maxinging my 401k, and so most people aren't saving enough. Um, but then once you do start saving, say you are saving enough. Um, a lot of it is people overthink it, you know. Um, it's usually a behavioral thing, right? So they overthink it with their investments, whether it's, you know, they start investing in tesla because, and then tesla drops 50 to 60 percent, you know, and then they get out and so they usually are their own worst buy at the top and sell at the bottom.
Speaker 3Yeah, are you a risk taker? Um no, I'm pretty cautious by nature do you encourage your clients to take risks?
Speaker 2wow, that's what do you define as yeah, so my.
Speaker 3So the way I reconcile, like, if they're like wanting to stay in their comfort zone. Are you like, get out of your comfort zone?
Speaker 2yeah, that's a great question. So it depends on. It depends on their goals. Yeah, so if they need to take more risk, so say that they've got two million dollars and you know they're spending. They need to spend 150 000 a year, 200 000 a year or whatever, and half of that's coming from social security, uh, but then the rest of their money is in cash, meaning they're super conservative. They're really worried about the markets and so, yes, I will show them that you do need to be invested in the market to be able to achieve your goals, because everybody's taking risk. What that person doesn't realize is they're subject to inflation risk. So, by keeping that $2 million in cash, if you look up and say we've got a 2% inflation rate, which is what we had, the last 30 years over 30 years.
Speaker 2A 2% inflation rate basically chops the buying power in half of that $2 million. So you can buy half as much stuff with that $2 million, if you do nothing with it 30 years from now as you can today.
Speaker 1So you are taking no matter what, you're taking a risk no matter what, you're taking a risk.
Speaker 2So that's where I would say, if they're super conservative to the point where it's detrimental to their goals point where it's detrimental to their goals then yeah, I would encourage them to see that you need to take more market risk and less, you know, inflation risk. But if there's somebody that you know doesn't need to take they don't need to be in a 100% stock portfolio to achieve their goals then no, I'm not going to encourage them to.
Speaker 1All right, so you said earlier that Dave Ramsey he thinks 8% year over year is what stock market makes. He says 12.
Speaker 2Okay, that's how he came up, that's how he came up with the 8%.
Speaker 1Oh, so spend 8% because you're making 12% and that makes no sense because you're really not.
Speaker 2It gives you a buffer? Yeah, all of that.
Speaker 1And so it assumes.
Speaker 2It assumes that you're in a 100% stock portfolio. That is helpful.
Biblical Perspectives on Finances
Speaker 1Okay, all right, hey, man we've covered a lot Any other things. Any final thoughts, jake? Just on money and like don't let it become mammon or anything that you want to talk about. I don't.
Speaker 2I don't. No, not really I don't.
Speaker 3Did you say don't let it become manna?
Speaker 2Mammon.
Speaker 3Oh manna versus mammon.
Speaker 1Huh Huh, get that. Mammon is like the god of greed.
Speaker 2Oh, I didn't know that. I feel like, if again this is not explicitly money related, but like you can't answer these questions biblically without being in the Bible. So not in a, you got to read your Bible, but like it's just more, there's more to it than God gave you money so that you can give it all away. Right, you know or you know.
Speaker 3God gave you money for you to enjoy it all. Do what Like, follow your conviction, yeah.
Speaker 2Which will be created by being in the in the word is is my advice. That's good.
Speaker 1All right, hey, thanks for watching and listen. If you want to have any questions for Jake, of course we have him as an answer man here for you We'll bring him back. Just text us at 737-231-0635. We talk faith, culture, everything in between here. So, from our house to yours, have an awesome week of worship.