In this episode, David answers the question: Should you have an IRA? The answer may surprise you.
The former "charter member of the IRA," which he got into when Ronald Reagan started the program in 1980, says that if he had it all to do over again, he would consider going with only two types of individual retirement accounts : the Roth IRA and an employer-matching IRA. He also recommends stock trading accounts.
His book, Ask the Mailman: A Simple Plan of High Yield Stock Investing for Uncommon Wealth, is available on askthemailman.com and Amazon.
This is At Home Radio, a welcoming space for conversation, insight, and stories that help us master our financial destinies.
I’m your host Kate Jones here with David Hawkins, author of Ask the Mailman: A Simple Plan of High Yield Stock Investing for Uncommon Wealth.
Good to see you again, David!
In our last episode, you talked about retirement accounts. Today, we’ll answer the question: Do you need an IRA?
David, what’s your answer to that question?
As mentioned in our last episode, I was the poster child for IRAs. I contributed the max every year ($4,000).
When I became self-employed, I opened a SEP IRA — which stands for Simplified Employed Pension. With a SEP IRA, you can put up to 25 percent of your income into a retirement account. That’s a greater deduction.
How has that worked for you, David?
These accounts are earning about 15 to 17 percent.
OK, what does that mean in terms of your actual savings?
Let’s go back to the rule of 72:
72 divided by 17 = 4.25, which means that your money would take 4.25 years to double
115 divided by 17 = 6.75, which means that your money would take 6.75 years to triple
To triple — wow!
The very important point here is that with compound interest, your accounts will grow at very good rates.
Also, there is another very important element about these retirement accounts, and that is the time value of money.
I have not contributed to the SEP in 20 years. I have not contributed to the other IRA in 15 years. And they are growing these rates.
Can you imagine what amount of money you could acquire if you started very young?
So what advice do you give people?
After all the years of saving for retirement in an IRA and knowing what I know now, I would do things differently.
Let me just say that the IRA programs are great for our society because we are not a saving society. Anything that encourages people to save, I’m for it. But there is a much better way than an IRA to have a great retirement.
The best way to have a great retirement is this:
Start as early in life as possible in high-yield stocks (not an IRA).
Get your children started.
Make small, regular contributions. (I say small so you keep doing it.)
Use the “DRIP” feature: Dividend Reinvestment.
Set goals for yourself or your children.
Set up automatic payments to your stock savings accounts.
After you acquire enough in dividends, then fund your IRA with a portion of your dividends.
Don’t open a regular IRA account. There are only two types of IRAs to invest in:
The best IRA to own is a Roth IRA. You will never pay tax on any contribution or earnings, but there are no deductions either, which is a big deal.
The second best IRA is an employer-matching contribution. Take advantage of the matching amount, but not a penny more!!! It’s free money.
This is a subject that I could keep talking about, and I have more examples to share. So if it is OK with you, Kate, I will pick up right here next time.
Of course! Thank you, David!
In the meantime, to order a copy of Ask the Mailman: A Simple Plan of High Yield Stock Investing for Uncommon Wealth, visit askthemailman.com. David’s book also is available on Amazon.