Steadfast Wealth Planning Podcast

Balancing Your 401k: Smart Retirement Savings for Every Age

• Cody Stansell • Episode 9

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How Much Should I Contribute To My 401(k) Or 403(b)?

Ever wondered if you're putting too much—or too little—into your retirement accounts? This question plagues nearly every working adult, but the answer isn't as straightforward as many financial advisors might suggest.

In this deeply insightful conversation, Cody Stansell reveals a revolutionary perspective on 401k and 403b contributions that challenges conventional wisdom. Rather than pushing the "max out your retirement" mantra, he explains why your age fundamentally changes how you should approach retirement savings. For those over 45, he unveils a mathematical tipping point where investment returns actually drive more growth than your contributions—potentially freeing up cash flow for other priorities like long-term care insurance, mortgage payoff, or enjoying life with family.

The discussion demystifies the pre-tax versus Roth contribution decision with a simple "two trees" analogy that clarifies exactly when each option makes sense for your tax situation. For younger savers, Cody provides practical guidance for balancing retirement savings with debt repayment and emergency funds, explaining why capturing your employer match might be sufficient during certain life stages.

What truly distinguishes this episode is how it weaves financial wisdom with faith-based stewardship principles. "The whole goal is not just to accumulate zeros and commas," Cody reminds us, emphasizing that moderation and balance should guide our financial decisions. This perspective transforms retirement planning from a numbers game into a thoughtful exercise in building a life that honors both present needs and future security.

Ready to apply these insights to your own financial journey? Visit Steadfastwealthplanning.com for a complimentary consultation or call 469-606-2040 to speak with an advisor who understands both financial wisdom and faith-based values.

To learn more about Steadfast Wealth Planning visit:
https://www.SteadfastWealthPlanning.com
Steadfast Wealth Planning
5550 Granite Pkwy, STE 270
Plano, TX 75024
469-606-2040

Speaker 1:

Welcome to the Steadfast Wealth Planning Podcast, where faith and financial wisdom come together. Hosted by Cody Stansel, owner and senior wealth advisor, we provide comprehensive Christian-based financial planning to help families, individuals and business owners build a life they're proud to live. From investment management and tax planning to preparing for retirement, we're here to guide you with clarity, integrity and purpose. Let's get started.

Speaker 2:

When it comes to retirement savings, there's no one-size-fits-all formula. In this episode, Cody walks us through how to approach 401k or 403b contributions with strategy and stewardship. Welcome back everyone. I'm Sophia Yvette, co-host and producer, back in the studio today with Cody Stansel, Senior Wealth Advisor for Steadfast Wealth Planning. Cody, how's it going?

Speaker 3:

Hey, Sophia Doing well. How are you guys doing?

Speaker 2:

Doing great here, Cody, Now excited to dig into this one. Retirement questions are where faith and financial foresight really come together. So, Cody, how much should I contribute to my 401k or my 403b?

Speaker 3:

Yeah, question as old as time as it seems like that's one of the first ones we usually get from when we meet with new people. I'm going to break it down into there's really two answers okay, enough to be on track for retirement, that's an obvious one. And then two, to benefit from the tax advantages right, that's why 401ks and 403bs exist. Is a tax advantaged way to save for your own retirement, right? The short answer to all of this is we meet with clients one-on-one and we have software and we go through. Truly, what do you earn? Okay, let's look at your 401k. What's your employer match? It really is unique to every single client. Every client's a little bit different, so take that with a grain of salt. But I get into some details here for the podcast, obviously. So I'll start off. If you are 55 years old or younger I'm going to stereotype here I would put you in the second answer enough to benefit from the tax advantages of the 401k If you are 45 years or older. The first answer enough to be on track for retirement is where I'd categorize you. I'll get to the 45 and younger here in a second, but I want to speak on the 45 and older first how much you contribute to retirement is more of an overall planning, financial planning topic At this stage of your life. Once again, if you're 45 or older, retirement isn't just a word anymore, right, it's starting to become a reality. In the next decade or two, you're most likely closer to retirement than college. Let that sobering fact sink in right for a lot of folks. So I see a lot of clients that just max out their 401k, not thinking about it, and move on, and that's not bad per se, but there are maybe some opportunities you're missing out on. Once again, we have software that shows where you are today with your balance, contributions, your investments, et cetera. Then we discuss where you want to go Retire at 62, 65, spending 10,000 a month, 20,000 a month, whatever it may be, with travel, eating, grandkids, medicare, social Security. It's a really overall financial planning thing. So we can forecast.

Speaker 3:

Is maxing out your 401k needed, is it enough? Are there other things I should be doing with my cash flow? Really dive into all that. Most people don't realize this one. You may be better off focusing your cash flow somewhere else at this stage in your life than just maxing out your 401k or contributing to it. And stay with me here.

Speaker 3:

There's at some point your investment returns really start driving more of your balance growth than how much you contribute to it. So I'm going to say it again there's a point where your investment balance gets large enough where your actual investment returns are more significant to your overall growth of your account balance than what you add to it from each paycheck. Okay, so, for example, if you have a hundred thousand dollars in your 401k and you're contributing 23 000, well, a 10% rate of return on your $100,000 balance is $10,000, right, just basic math. So you adding $23,000 is more than twice as impactful than what your investments actually earned you that particular year, right. But as you get older, as your investment balance grows. Same example, but let's just say your balance is now $500,000 and you still contribute that same $23,000. A 10% rate of return on $500,000 invested is now $50,000. Now it's flipped right. Your investment balance it's more than twice as impactful than you contributing to your 401k, contributing to your 401k.

Speaker 3:

So over time, I actually show a lot of clients hey, instead of putting in 23,000, which that's the max for 2025 is why I'm saying that number, that's the most the IRS will allow you to put in, instead of adding that to your 401k.

Speaker 3:

Maybe there's some other things we can do with that money and help your cashflow right. Let's open a brokerage account that you can access before you retired so you can buy a lake house or spend it on your grandkids. There's long-term care insurance that we may need to pay for, and where's that cashflow going to come from right? Paying taxes if you have Roth conversions aka moving traditional IRA or traditional 401k and converting it to a Roth there's going to be a tax bill with that. Or we may need to have your mortgage paid off in the next 10 years for you to be able to retire. Maybe that's where that cashflow should go. So once again, I put folks in a certain category for this podcast, but if you're a 45 or plus, I may want you to contribute to your 401k less, a little bit less than a lot of people think.

Speaker 2:

Understood. Now can you explain the difference between pre-tax and Roth contributions, and one might be better than the other.

Speaker 3:

Yeah, absolutely, and I'll get to that here in a little bit. It's all the tax situation. So, pre-tax, think of two trees, if you will,000, you contribute $10,000 to your traditional IRA. The IRS is only going to tax you on $90,000. So you're going to owe from the jump less than taxes by doing that. That money is invested, it grows and grows and grows. You add to it. It grows to a bucket of money In retirement.

Speaker 3:

When you take money out to a bucket of money in retirement, when you take money out of a traditional 401k or traditional ira, that's where the tax bill comes in. So any money you take out that calendar year is a tax taxable income to you, right? So think of that as tax benefit today. But oh, I'm gonna have to pay taxes at some point in the future. A Roth is the exact opposite. Right same example you make a hundred thousand dollars. You contribute ten thousand dollars to your Roth 401k or your Roth IRA. The IRS still tax taxes you on a hundred thousand dollars that you made. They don't care. That you contribute to it doesn't affect your taxes today at all.

Speaker 3:

But the difference is that money grows and grows and grows over time. You add to it Doesn't affect your taxes today at all. But the difference is that money grows and grows and grows. Over time you add to it that bucket of money, that tree, is now 100% tax free, right? So it's a beautiful thing. And this is where we sit down with clients and say, okay, where's your tax situation today? Like, what tax bracket are you in, what kind of income do you have and what makes sense Contributing to the pre-tax portion, contributing to your Roth 401k, doing a little bit of both to get you in a certain tax bracket. So that's the overall scope of it. Obviously, we sit down with clients and have a detailed recommendation form amazing.

Speaker 2:

now final question for you today Are there spiritual or lifestyle considerations that influence how much someone should save?

Speaker 3:

Yes, great question. That is more so the planning aspect as well. The whole goal is not just accumulate zeros and commas on your number and retire and never get to benefit or bless others with that money. Right? There's such a thing as overdoing it, right? We don't want to overdo it and just have so much money but we never had any fun or we never took our grandkids on a vacation or something like that. It's moderation On the flip side. You don't want to just live life right now and never save, and now you're poor when you're 70. That's not the right answer either. It's about moderation and it's about balance, balancing today with 10 years from now, 30 years from now. So that's a spiritual aspect, as well as just benefiting yourself, benefiting other folks today and in the future, and having that balanced approach stewardship mentality.

Speaker 3:

Absolutely. And then, real quick, I do want to talk on the 45 or younger. Uh, just real quick, I'll walk through that. So the reason originally when I had the two different, uh, you know, 45 or older or 45 or younger, if you're younger than 45, life will change so much in the next 15, 20, 25 years that it's really hard to hone in on. Okay, what's the exact percentage that we should be contributing? Right, the Lord's looking down, chuckling that we're trying to forecast 20 years in the future, right? So a blanket answer.

Speaker 3:

If you don't have an advisor, how much should I contribute? 15% is a blanket. Just say 15% of what you make. That's a great starting point. Once again, over time, talking with a professional and honing in that number doesn't need to be 17%, doesn't need to be 12. That's really where that falls in line. But obviously we do this for a living and we have more detailed recommendations. So, baseline, it's 15%, but for folks' situation and depending on where you're at in life hey, cody, I'm still paying off debt. Should I contribute to my 401k? Hey, cody, we don't have much in a savings account. You know, we're one water heater exploding or fence falling over from dipping into our retirement account or putting on a credit card. If you're in those phases of life, I'm going to want you to back off what you're contributing to a 401k to focus on those topics, right? So I'd say, if you're in that phase where you're working on building your cash or paying off debt, contribute the minimum to get your employer match.

Speaker 3:

So most companies will match a certain percentage of what you put in your 401k, but the most common company match is about 3%. Some do more, some do less, but I will warn you, be careful. Some company matches have a 50% or 25% up to a certain number. So if they match 50% up to 3%, what that really means is you must contribute 6% and they'll do 50% of that number, and so they'll contribute three. But you have to contribute six to get all of that three.

Speaker 3:

Some folks just think, oh, I'll put in three to get the three and it's like, oh, if you put in three, you're only going to get one and a half, right? So every 401k is a little bit different. So, looking at that, one is a good one and, once again, if you are working on building cash or paying off debt, I would do the minimum to the 401k to get the match, but focus the rest of your cash flow on those other goals and then, over time, once your cash is in a good spot, once your debt is paid off or in a good spot, then let's bump it back up, either to that 15% or sit down with a professional. If we can go through what we exactly recommend.

Speaker 2:

Wow. Thank you so much for sharing those insights with us today, cody. Appreciate the wisdom and the encouragement, as always. Can't wait to join you next time for another step forward toward faithful financial living. Take care, cody.

Speaker 3:

Absolutely. Thanks, Sophia. God bless you. Faithful financial living. Take care, Cody.

Speaker 1:

Absolutely. Thanks, sophia. God bless you. Thanks for joining us on the Steadfast Wealth Planning Podcast. Ready to take the next step in your financial journey, visit steadfastwealthplanningcom for a complimentary consultation or call 469-606-2040. Smart planning, christian values, a life well lived. We'll see you next time.