Pastor Plek's Podcast
Pastor Plek's Podcast
Biblical Financial Wisdom with Jake Ridley
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 2:We 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 1:Well, 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 2:So 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 1:It's going like five to 4.75.
Speaker 2:I feel like this has kind of been a train wreck.
Speaker 3:It'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 1:It'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 3:feel that way sometimes, or am I just like the outsider that? Oh, I just totally see it.
Speaker 1:Like 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 2:I thought you were referring to the Fed being a train wreck.
Speaker 1:I 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 3:I don't even know who we're talking about.
Speaker 1:Okay, real quick. Talk to us about Jerome Powell, Jake.
Speaker 3:I just want you to know that this is my expertise Financial planning and finances and budgeting.
Speaker 1:This is my area Like wheelhouse, crush it.
Speaker 3:I know a ton about it.
Speaker 1:Yeah, so talk to us about who Jerome Powell is and why we should care.
Speaker 2:He'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 3:Is there stability?
Speaker 2:Well, 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 1:But hold on On lowering interest rates. Doesn't that affect a bank and how much money it can make?
Speaker 2:So 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 3:go ahead, so lower rates. That was the reason houses were being sold for like double than what they.
Speaker 2:That was a big reason.
Speaker 1:Yeah, because they knew that the people buying could get more money.
Speaker 2:Yeah, totally. I mean most people when they go to purchase a house, look at the monthly payment right.
Speaker 3:Yeah.
Speaker 2:And 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 1:Right.
Speaker 2:So it can inflate the values of things. That's one of the reasons I mean work from home was a big reason yeah.
Speaker 1:And people need to invest in their house, and now I have a home office that I have to.
Speaker 2:Yeah, 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 1:You sell cars.
Speaker 2:Right. Shoot the prices. Use cars Increased in value Right During COVID when that doesn't happen.
Speaker 1:That 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 2:Stable 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 1:This 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 2:That'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 1:that the world doesn't work that simply, it just seems like it's just such a you've got one job.
Speaker 2:It's a blunt instrument. It's a very blunt instrument.
Speaker 1:It feels like yeah, I've got this big sledgehammer and give it a whack.
Speaker 3:Well, 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 1:Yeah, 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 3:Why would it not be okay to save for retirement?
Speaker 1:I'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 3:Well, 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 1:Like you have no idea, right.
Speaker 3:And so why would you save so much money to live well as an old person when you don't even know?
Speaker 1:When you can live well as a young person. You could live well right now because you're alive.
Speaker 3:But then you know the wiser, more logical side of me that doesn't. It's not as loud.
Speaker 1:Right as my live recklessly.
Speaker 3:side Says well, do you want to live in a cardboard box when you're 60 years old?
Speaker 1:Yeah, so how does Ryan, does he help manage that?
Speaker 3:for you. He's a saver.
Speaker 1:Okay, and you're the spender, yeah, and how does that work out? You know, he's just like.
Speaker 3:I don't touch the phone, I don't you just like hey, give me my.
Speaker 1:Do you do it by the cash system?
Speaker 3:No, Um we. What's his name? Ramsey.
Speaker 1:Dave Ramsey Dave.
Speaker 3:Ramsey yeah, we appreciate him, but he doesn't.
Speaker 1:We don't do the.
Speaker 3:We have credit cards. He's anti-credit card. We have a credit card, but we pay it off every month.
Speaker 1:Sorry, 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 2:Generally 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 2:So 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 1:That'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 2:So 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 3:So it's made up of all of those Real quick yeah, ava would like you to know that she's four.
Speaker 1:Okay, I appreciate that, ava Okay.
Speaker 3:She's been telling me, to tell you that for the last 10 minutes.
Speaker 1:Ava, are you four years old? Oh, that's very exciting. I love your shoes too, Ava. Those are some good looking sparkly shoes.
Speaker 3:Like 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 2:Did she just turn four?
Speaker 3:She turned four on Monday.
Speaker 2:Hey congratulations.
Speaker 3:She's like she wants everyone to know.
Speaker 1:Well, 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 3:A bond market.
Speaker 1:Bond market so you buy into. Detroit is raising money for something.
Speaker 3:Why do we care about what Detroit's doing?
Speaker 1:I don't know.
Speaker 2:I just threw out a crappy city Because they pay you money. Yeah, you lend them money and they pay you interest. Detroit does.
Speaker 1:Yeah.
Speaker 2:The whole bond market does, the whole world does.
Speaker 1:Yep, so you give them.
Speaker 3:I've never even heard of a bond market.
Speaker 1:I 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 2:I 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 1:All 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 2:And 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 1:Can you get out of a bond? Yeah, you can sell it. It's just like it's like a stock.
Speaker 2:Yeah, 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 1:So that's why. That's why Okay, that's why I've heard Don't do bonds, yeah.
Speaker 3:Okay, all right, we'll get off.
Speaker 1:You have the best questions.
Speaker 3:Well, 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 2:Does it have a reputation?
Speaker 1:Oh, 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 3:Yeah, 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 1:Right.
Speaker 3:And 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 3:um, 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 1:Nice.
Speaker 3:Depending 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 2:And 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 2:There 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 1:There can be inside buyers. Wanting to take over the company or get more property. Just want more shares.
Speaker 2:Yeah, more shares all right, so back to this retirement thing tell me about?
Speaker 1:is 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 3:wait, give it away. Why would you give it away?
Speaker 1:To Jesus, because he's got, isn't that what the Bible says.
Speaker 3:So wait? You're saying don't save your retirement. I'm asking the question. You're saying give your retirement, why not?
Speaker 1:give 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 2:So yeah, I've that it. You know, I've heard christians wrestle with whether it shows a lack of faith for saving.
Speaker 3:If 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 1:It'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 3:Oh wow, there are those people.
Speaker 1:The minimalists, I mean, there are those people.
Speaker 2:That'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 3:What's his thing? Is he one of those? Don't waste your life.
Speaker 2:Don't waste your life was his big-.
Speaker 3:Oh, so he thinks saving for retirement is no?
Speaker 1:No, no, no. He just says saving for retirement, so that you can only go walk along beaches and collect seashells, is a waste.
Speaker 2:And 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 1:That is a middle, so talk to us about that middle.
Speaker 2:So 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 1:Listen, spend it all. I'll take some of that right now. Here's your fee, yeah.
Speaker 2:But 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 3:Right, 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 1:maybe is it the locust like which.
Speaker 3:What other? What what's?
Speaker 1:the other, what other it's?
Speaker 3:like making fun of the ant for like working.
Speaker 2:I 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 3:I mean, what other story are we talking about?
Speaker 1:There's a proverb A talked about, but we were talking about. There's the the proverbs about the ant.
Speaker 3:Hey, I'm impressed when. Oh, I only know about it because ryan bought ava the book of like all the fables and whatever.
Speaker 2:So 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 1:Okay, so let's, let's talk about that.
Speaker 3:I feel like as long as you're giving, then like who cares what you're doing with your retirement?
Speaker 1:Well, 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 3:Oh, it was attacking me earlier.
Speaker 1:I'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 2:Well, yeah, maybe expound on what you mean by giving to Katie when you say if you're giving, isn't that okay?
Speaker 3:Yeah, well, because giving is the biggest priority anyways.
Speaker 1:And 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 3:Oh 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 1:Right.
Speaker 3:And 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 2:how 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 1:But, 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 3:We 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 1:Do you ever go over?
Speaker 2:Yes.
Speaker 3:Not 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 1:All 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 1:We'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 3:so therefore on earth, earth.
Speaker 1:I'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 3:I'm going to give you the middle.
Speaker 2:I 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 2:That'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 1:How 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 2:Yeah.
Speaker 1:And 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 2:Now, 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 3:So I text Chris Blazel because I was like hey, we're talking to a financial planner guy, what questions can I ask him?
Speaker 1:Oh nice, you could have just asked it and then looked really smart over there.
Speaker 3:Oh, you know. I'm way too transparent for that. But he works for Gravity, Financial Gravity.
Speaker 2:Okay, I haven't heard of him.
Speaker 3:Well, I won't tell him, you've never heard of it.
Speaker 2:Okay, it's all about to edit this out.
Speaker 1:Go ahead.
Speaker 3:But 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 1:Oh, wow, like you're going to retire right now.
Speaker 3:Yeah, like someone's retiring today. What advice would you give them?
Speaker 1:That's a great question Is that what you would say? Would you ever be like? Oh, I'm sorry.
Speaker 3:No, send me some good ones.
Speaker 2:So 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 2:So 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 3:Just like you do Not wasting your life. Not wasting your life, like John Piper says Exactly.
Speaker 2:That's it.
Speaker 1:Okay. 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 2:So 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 2:And 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 1:I 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 3:That is so much money.
Speaker 1:I mean just, I guess my car payment's like 20 grand a month. Nothing I can do.
Speaker 3:You 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 2:Yeah, 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 2:There'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 1:So 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 2:I I like dave ramsey as far as get your emergency fund sure is this an investment philosophy?
Speaker 1:yeah, 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 2:Yeah, 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 2:You 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 1:Savings option.
Speaker 2:Not 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 2:Like 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 1:So you go over to bonds where you're getting more than 2%.
Speaker 2:Behaviorally, 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 2:So, 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 1:uh, 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 2:Are we just?
Speaker 3:like only talking about retirement.
Speaker 1:No, you can ask another question, but I want to hear this one.
Speaker 2:Okay, 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 2:But 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.
Speaker 2:But, 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 2:oh, 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 2:You 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 2:There'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 1:Thank you.
Speaker 2:Of 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 1:It'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 2:Yeah. 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 1:All right, Katie, next question you got.
Speaker 3:Okay. How do you measure a client's risk aptitude?
Speaker 1:Whoa nice, that's a good question. That is a good one.
Speaker 2:I 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 1:And what does that even mean?
Speaker 3:Because you're saying like how much am I willing to lose?
Speaker 2:I 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 1:I can't. What are we going to do? We're going to be in the Great Depression. I'll have nothing, totally.
Speaker 3:Wait, $10,000?. Let's say you had $150,000, $200,000 in your whatever account your bank account Like your checking account.
Speaker 1:In your portfolio.
Speaker 2:Say 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 1:That'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 2:Right.
Speaker 1:And then you read an email from Jake and you're like, oh wait, this happens all the time.
Speaker 2:The market will come back Totally, but until you've done. But that's the.
Speaker 1:Well, 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 2:Right, it's been there done that yeah.
Speaker 2:So 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 2:And 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 1:That's why you've got to podcast. They need to be listening right now.
Speaker 2:Yeah, 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 3:I feel like you probably didn't want me on this podcast episode, but you were trying to be nice.
Speaker 1:I 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 3:feel like you had like a vision for this and I'm kind of ruining it.
Speaker 1:No, you're not, Because I don't know anything about anything that we're talking about. No, no, it's fine, keep going.
Speaker 2:Okay the other question is what are the biggest roadblock? Oh man, Not making enough money.
Speaker 1:I 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 2:I 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 3:Yeah, are you a risk taker? Um no, I'm pretty cautious by nature do you encourage your clients to take risks?
Speaker 2:wow, that's what do you define as yeah, so my.
Speaker 3:So 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 2:yeah, 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 2:A 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 1:So you are taking no matter what, you're taking a risk no matter what, you're taking a risk.
Speaker 2:So 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 1:All right, so you said earlier that Dave Ramsey he thinks 8% year over year is what stock market makes. He says 12.
Speaker 2:Okay, that's how he came up, that's how he came up with the 8%.
Speaker 1:Oh, so spend 8% because you're making 12% and that makes no sense because you're really not.
Speaker 2:It gives you a buffer? Yeah, all of that.
Speaker 1:And so it assumes.
Speaker 2:It assumes that you're in a 100% stock portfolio. That is helpful.
Speaker 1:Okay, 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 2:I don't. No, not really I don't.
Speaker 3:Did you say don't let it become manna?
Speaker 2:Mammon.
Speaker 3:Oh manna versus mammon.
Speaker 1:Huh Huh, get that. Mammon is like the god of greed.
Speaker 2:Oh, 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 3:God gave you money for you to enjoy it all. Do what Like, follow your conviction, yeah.
Speaker 2:Which will be created by being in the in the word is is my advice. That's good.
Speaker 1:All 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.