Over the past two days I have had 4 separate conversations with 4 different people/couples concerning finances. Therefore, I thought I would post a few of my thoughts concerning financial planning and preparing for retirement. Please remember that I am neither a personal finance planner, nor the child of a personal finance planner so you should takes these thoughts as what they are – the ravings of a minister who thinks he is a fan of personal finance information but is probably off his block.
The Bible & Retirement
So first let’s talk about the Bible and retirement planning. I’ve heard some believers in Jesus say that you shouldn’t plan for retirement because retirement is an unbiblical concept. I’m going to disagree with part of this belief. I do agree that the idea of retirement as luxury and self-interest is unbiblical. We were created with work as a part of who we are – “The Lord God took the man and put him in the Garden of Eden to work it and take care of it” (Genesis 2:15). I don’t see anything in scripture indicating that we will ever reach a point in our lives where we will live out the cultural fantasy of just sitting our drinking mai tai’s on a eternal vacation just focused on ourselves. Of course, that doesn’t mean that the amount and nature of work can’t change as we get older. Retirement can mean that you have planned in such a manner that you no longer have to work just to make ends meet. This frees one up to volunteer and work jobs that benefit our communities. Most of the retirees I know aren’t retired in the mai tai selfishness manner, but instead in the “I am free to volunteer” manner and the community I live is better because of them. Some of the busiest people I know are retirees who live our the “I am free to volunteer” mindset.
I’ve also heard a few people use the parable of the rich fool (Luke 12:13-21) to say that a Christian shouldn’t save for retirement. After all the passage ends with Jesus stating “This is how it will be with whoever stores up things for themselves but is not rich toward God.” But this sentence isn’t an either/or statement and this parable isn’t telling us not to save. This parable isn’t about retirement planning. Retirement planning in Ancient Near Eastern Hebrew life was focused on land and family. The rich fool already had barns in which to store, presumably, enough grain for him to live. He had what would be necessary to take care of himself, but he wanted bigger barns for more grain. He wanted to have enough to do nothing but “take life easy; eat, drink and be merry.” This parable isn’t about retirement planning. It is about greed.
At least that is what Jesus tells us, at the very beginning of the passage, the parable is warning us against, “Be on your guard against all kinds of greed; life does not consist in an abundance of possessions.” Planning for our future isn’t a lack of trust in God, but we have to watch out for saving in such a manner that our trust is actually in our “abundance of possessions” rather than in Jesus. We must focus on being “rich toward God” while we are still planning for a future without as much income for support.
My Advice – Start Early
So let’s talk practicals, and my first practical bit of advice is to start EARLY. Time is your friend when it comes to investing for retirement. The earlier you start the better. For the first 5 years that Pam and I were married one of us was in school. This meant that one of was earning the income for the family and paying for the other person’s schooling. These were very lean times for us. After those first 5 years we were both out of school, but it was important to us that one of us was home with Adam (and then Noah), so we maintained a single income. The thing was that now that single income was supporting a family of four. Once again lean times.
Still we contributed to our retirement plans. There wasn’t much left for us to contribute after giving to God’s work and expenses, but we still managed to put a little bit each month into our retirement. Time has been our friend. Our small contributions from those lean times have thus far grown 4 to 5 times the value of our contributions.
Time is on your side so start early. If you are 18 years old or older and earn income you can setup a Roth IRA. The beauty of a Roth IRA, beside tax free withdrawals when you retire, is that the funds you contribute to your Roth can be withdrawn in case of an emergency after 5 years. This is just for the funds you contribute, not the earnings. Thus a Roth can also count as an extended emergency fund. That’s an additional benefit, and everyone needs an emergency fund (I would encourage you to have a real emergency fund that isn’t your Roth and only use your Roth is things every get REALLY desperate).
I’m hitting hard on starting early because I deal with a number of young people through Tapestry and chaplaining. Please start early. I believe the disciplines of giving money to God’s work (we usually call this “tithing”), charitable giving, and saving for retirement are not only helpful in the long run, but they also help to develop a mindset concerning money that helps a person to control their finances rather than being controlled by their finances.
My Advice – Get Your Match
My second bit of advice is to not give up free money. If you work for a company that matches part of you income that you put towards retirement then you should put in at least what is necessary to get that match. For example, the company that I chaplain through, Corporate Chaplains of America, and the denominational state convention of which Tapestry is a part, the Minnesota-Wisconsin Baptist Convention, both match part of my contributions to Guidestone. There are other companies whose funds outperform the funds that I am able to get through Guidestone and other companies whose fees are less expensive than Guidestone, but not many that outperform my funds in Guidestone when you add the matching to my performance. Employer matching is free money and it takes a really terrible investment fund for it not to be worth at least putting the minimum in to get the matching.
Now this doesn’t mean I believe you should put all your money into the employer funds from which you get matching. Put what you need to get the matching and then consider other funds whose expenses are less and/or whose funds perform better. Even better, if you are at a point when you need it (remember we are not to trust in and develop an “abundance of possessions”) max out your company 401k (403b in my case), where you hopefully get matching, and max out a Roth IRA at a low cost high performing fund group (My personal recommendation is Vanguard or Fidelity)
My Advice – Go Low Cost
Many people will tell you that they can manage your money better than the market, and they will charge handsomely you for the privilege of letting them do so. Warren Buffet, who knows a thing or two about investing, doesn’t subscribe to that belief. His recommendation is that we buy low cost index funds. He just won a bet, and gave it to charity, proving his thought that the index funds would do better than the hedge funds against which he bet. Low cost index funds usually outperform high cost managed funds.
Index funds just match components of various market indexes. To quote CNN Money indexes …
have been set up to track how a particular part of the stock market – or the stock market as a whole – is doing. There are indexes that track large-cap companies, small-cap companies, the entire stock market and so on. One of the most common indexes is the Standard & Poor’s 500, known as the S&P 500, which represents a broad cross section of 500 large American companies.
Index funds are boring. You buy them and forget about them. They are also usually cheap, and cheap is very good (You can buy some that’s aren’t cheap and you should probably avoid them). An index fund may rarely outperform the market but it also doesn’t charge you 5% on the front end and then 1% yearly. For example, Vanguard’s 500 Index fund has an expense ratio of 0.04%. Your actual return will very often be much greater on a boring fund that does what the market does but costs you little, versus an excited managed fund that may look like it makes a great return (though often it doesn’t) and then drops your actual return with lots of fees.
In addition to index funds I think people should use age targeted/target date funds. These are funds that adjust your investment strategy based on your age. For example, one of my funds operates under the belief that I will retire in the year 2035. As an investor I should become more concerned with safety as I get closer to that date. I can adsorb more risk early on in my investing than I can later. A target date fund adjust its investing philosophy from risk to safety as I get closer to retirement.
So here’s what I would like to say to wrap all this up – I believe every household should spend a little time each week thinking about how they are using and how they want to use their money. If we never think about such things then we won’t be purposeful in our finances. You don’t have to spend a ton of time thinking about your money (in fact, I would encourage you not to spend a ton of time doing so). Maybe 30 minutes a week asking some simple questions, like “did we use our money wisely this week?” Retirement should be one of the questions you address every so often. There are plenty of resources out for help concerning finances and retirement. For now I will simply list a few podcasts that I listen to concerning the subject:
NOTE – The above podcasts are in alphabetical order and not in order of greatness, except for Clark Howard. Yes “C” is before “M” but if this was order of greatness the Clark Howard Podcast would be first. Clark is the best!
BTW, remember these are just the ravings of a minister who likes reading and thinking about personal finances. If you are fool enough to do any of the things I suggest and they work then the credit goes to you. If you are fool enough to do any of the things I suggest and they bomb on you, well, that’s your fault too. 🙂