When it Comes to Early Retirement - Start with Why, Ep #1
This is the inaugural episode of the One for the Money podcast! While most episodes will be about the details and implementation of early retirement, I want to take this opportunity to focus on the motivations and reasons. Many of you may be thinking that the “why” of early retirement seems straightforward. You’d love to stop working sooner! However, your retirement is far more successful when you retire TO something rather than FROM something. I look forward to sharing with you what that means, and at the end, I’ll share some early retirement tips, tricks, and strategies.
In this episode...
The pursuit of happiness [01:59]
Money management happiness [06:51]
Which type of 401k is for you? [09:29]
Having options in retirement [11:59]
Where do we find happiness?
You may be surprised to hear what research has shown about where people ultimately derive happiness. Studying happiness and the pursuit thereof has long been a hobby of mine. Much of what I read was research from Dr. Martin Seligman, an American psychologist who focuses on happiness rather than psychological disorders. He analyzed people who were thriving and derived five key elements of psychological well-being and happiness. These five core elements are positive emotion, engagement, relationships, meaning, and accomplishment: PERMA. Financial planning can help in each of these core elements.
Financial planning to reach your goals
Financial planning is much more than managing money or helping you reduce your tax liability. It’s also about accountability to the values and goals that are most important to achieving happiness. Goals are the destinations, a financial plan is the vehicle to get us there, and investments are the engine that drives the plan forward. True financial planning will intensify these goals, designing and implementing strategies to help you on your way to PERMA and in your pursuit of happiness.
As you put together your financial plans, I challenge you to focus on the factors that impact happiness: positive emotion, engagement, relationships, meaning, and accomplishment. Those should be the central focus of any financial planning that you do.
Traditional 401(k) vs. Roth 401(k)
There are essentially two types of retirement accounts. The difference between them is when you decide to be taxed. The first is known as the traditional retirement account. These are the original retirement accounts in which you elect to be taxed later when you retire. Traditional retirement accounts include an IRA version, 401(k), 403(b), and 457. The second type of account is a Roth retirement account, named after the senator who sponsored the legislation to create them. You elect to be taxed now in a Roth retirement account, so you never have to be taxed again. Roths are relatively new. They became an option as an IRA in 1998 and a 401(k) option in 2001.
The big question is: which should you choose? Your decision depends on what your taxes are now and what you think they will be in retirement. Tax rates may seem high right now, but they’re near historic lows. Starting in 2026, all the tax brackets, except the lowest, will be reset higher. As a general rule of thumb, it’s best to fund traditional IRAs and 401(k)s during your highest income years when your taxes are generally higher. It’s best to fund your Roth IRAs and 401(k)s during lower income years when your taxes are lower. Investing in both gives you a tax-diversified retirement with control over your tax rate. This strategy provides you with important options during your retirement.
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