How do Retirement Accounts Work?

One of my dear friends asked me about retirement accounts.  He didn’t want to know what we invested in, but how the system of investing works.  The question was different for me because I am normally talking about our investing products, not how it all works.

I’m used to seeing eyes glaze over as I discuss our portfolios because people aren’t really interested in the products.  They want to know how trusting me with their money will help them have peace of mind.  My friend, in his typical bluntness, just had the courage to ask me directly.

To understand how retirement accounts work, we must first understand a little more about how the world works.

Ben Franklin is credited with saying death and taxes are the only two guarantees in life.  I would add hardship to that list.  Unlike the picture we try paint on social media, we will experienceretirement accounts hardship at some point in this world.

Like many of us, my friend has been screwed over before and doesn’t trust “the system.”  Being skeptical about investing and the system overall is perfectly rational.  I would go as far as saying this skepticism is Biblical.  We live in a fallen world full of trials, tribulations, and dishonesty.

We are called to pursue the goals God placed in our heart, while navigating the hazards of this world.  Yes, we should protect ourselves, but we must be careful not to allow fear to hold us back.  Fear is one of the tools the enemy uses to keep us from our goals.

Until Jesus returns, nobody will have a perfect life.  We will all face different levels of adversity.  What matters is how we handle that adversity.

Technology has given us access to the resources needed to help us face some of life’s challenges.

I think my generation (by that I mean the 40–45-year-old person) was the first to have enough technological access to help us learn how the system works.  We have grown up watching technology change the world mostly for the better.  Unfortunately, as with all advances in humanity, we experienced many ups and downs.

We saw friends and family members gain and lose jobs.  We saw warehouses and factories become ghost towns all because the “higher-ups” realized they could cut costs by moving the jobs overseas.  New media access allowed us to see the worldwide impact of economic business cycles.

Unfortunately, we have had to endure all the noise accompanying this new access.  Much of the current access we enjoy tends to feed our negativity bias.  We are naturally drawn to negative news and drama.  Even when we hear good news, we immediately wonder who got ripped off.

If we want to get ahead in this life, we’re going to have to flip that script.

We must stop blaming politicians, our bosses, or even our location as the reason why we can’t reach our goals.  When we rely on other people, we give them power.  I’m all for lifting each other up and bringing people with you in your pursuit of your goals.  You just can’t let them hold you back!

retirement accountsUnfortunately, living in a fallen world means bad things happen and some people will hurt us.  I’m sorry someone in your family lost money in the stock market or other business deals.  We have all been there, but we can’t give up.

Although there are risks to investing, I believe the stock market is the best opportunity to help us pursue our goals.  Yes, it can be scary, but giving in to our fear and doing nothing is exactly what the enemy wants.

When thinking about how retirement accounts work, it helps to understand value.

What makes something valuable?  We use the price tag of a product or service to tell us value.  But is that a perfect system for determining value?

The true value of a product or service is the price a rational buyer is willing to pay for that product or service.  Notice that you need a willing buyer.  Without the buyer, even the most “valuable” thing in the world is worthless.

Personally, if given a choice, I would rather invest in the stock market instead of “flipping a house” like they do on television.  I’m scared for clients who try that, especially when they have little discretionary income.  There are usually high up-front costs, and you still must sell the property.

Without a buyer, they can invest everything in that property and end up stuck with it.  With the stock market, the buyer is already waiting for you.  Sure, you may lose your investment, but with today’s technology, it’s virtually impossible to be stuck with property.

The almost guarantee of a buyer, ease of transactions, and the potential to grow make investing worth your consideration.  I believe the stock market is the best opportunity for the lower middle class American to build their wealth.  Of course, I’ll be glad to help you on this journey as well.

I can help with many types of investments, but my focus is on retirement accounts.

Obviously, retirement accounts make good financial planning sense, or I wouldn’t talk about them so much.  They can have tax benefits as well, but my favorite part is the long-term commitment.

Unlike everything else in our instant gratification society, retirement accounts force us to slow down.  It’s nice to take some time to see the big picture of our life.  What do we want to achieveretirement accounts during our time here?  Let’s talk about our goals instead of “get rich quick schemes” or “hot stock tips.”

We’ll leave that mess to the movies and focus on the real world.  Real world investing is a marathon.  There will be ups and downs, highs and lows, but you must be in the race to have a chance of reaching your goals.

It is a myth that you cannot touch the money in retirement accounts until you retire.

No, you shouldn’t use it early, but you always have access to it.  Yes, there could be a penalty and tax consequences if you need to take money out of the account, but you can get your money.  Sometimes you can even avoid the penalty or taxes!

Your friends and loved ones may have been misinformed when they told you this myth.  Don’t be mad.  Many people believe this myth and they tell us out of love.  It’s nice they are trying to save you 10% in penalties.  However, you could be missing out on much higher returns.

Maybe an example will help us understand the rules better.

We’ll use comic books because I collect them myself.  Say you buy a book for $50.  You have one buyer who will purchase it for $300 in 10 years.  If you sell the book before the 10 years are up, you will pay the buyer a 10% penalty on the gain.  We’ll ignore taxes for this example.

Of course, the downside is the buyer can back out of the deal, so is it worth the risk for a 600% return?  What if there are no other buyers?  At 5 years, the book is worth $150, so you decide to sell.  You made $100 profit ($150-$50).  However, after the 10% penalty, you made $90.

That is essentially how taking money out of your IRA early is treated.  There are no retirement police coming to arrest you.

When you have your account with me, we’ll always walk through the different consequences of your actions.  My goal is for you to always make informed decisions.

I wish I could promise you a perfect experience with retirement accounts or other investments, but I can’t.

The truth is that there is always risk involved in investing.  There are risks in every aspect of life.  We take a risk when we drive to work, but the promise of being paid helps us tolerate that risk.

retirement accountsShouldn’t your money work a little bit too?  In life it’s hard to grow when we don’t take some risks and I could say the same thing about money.  We don’t like people to be lazy, so why don’t we hold our money to the same standard?

Honestly, I trust the stock market more than I trust politicians to make our lives easier.  I also trust the market to raise your wealth faster than your boss increases your salary.

There will always be something on which to spend money, especially when we are given more money.  Instead of buying another television, so every room has one, try investing that money.

Investing is no longer only for the already wealthy (Although many financial services companies promote that message).  If you have a phone app and some courage, you can be an investor.

If you’re serious about being committed to building wealth now and in your future, then you’d probably like some help.  I would love the opportunity to work with you.  Email me!

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Jonathan Greeson is located west of 117 and south of E. Main St.
Jonathan Greeson is located west of 117 and south of E. Main St.

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