The Money Matters Club gathered and honored the legacy of Senator William V. Roth, the Father of Roth savings accounts in America. These are the minutes of our time together.
If you were among the nearly 200 Club Friends to be at that Club session on Tuesday, July 25, 2023, thank you! Please comment on what you took away/did next with the information we covered together.
If you missed this lunch-n-learn session, here's a recap for you to feel almost like you were there with us. I hope it helps you learn what to consider when it comes to the role Roth savings may play in your life toward meeting your money goals!
We started with a brief tribute. If you didn't know that Roth Savings accounts were named after this man, you aren't alone. I realized it myself only maybe about a decade ago-ish.
William V. Roth Jr. didn't just invent these tax-advantaged ways to save for retirement in America. He did a lot more for us. He was known by the nickname, "The Taxpayer's Best Friend," for the myriad ways he looked out for taxpayers beyond the now famous savings accounts he added into the IRS tax code.
Roth was born on July 22, 1921. He died suddenly in DC on December 13, 2003, at 82. Today he would be 102 at the time of this post. So we wished him a happy birthday and looked back on his achievements. He was an American lawyer and politician from Wilmington, Delaware. A veteran of World War II, earning a Bronze Medal, he also served two terms in the U.S. House of Representatives and five terms as a U.S. Senator. In memorial, then-Senator Biden said of Roth, “a consummate gentleman with a flair for bridging partisan divisions in the U.S. Senate. He made life better for the people of Delaware, the nation, and the world.”
His memorial was recorded Dec 21, 2003, and I very much enjoyed hearing from those who stood for him and honored his life from both sides of the aisle, including his son, William Roth III. Here is his memorial if you'd like to pay tribute to him further: https://www.c-span.org/video/?179656-1/senator-roth-memorial-service.
Since the Club session, I picked up a copy of Senator Roth's book, "The Power to Destroy" that he co-authored with William H. Nixon, Roth's Executive Assistant until 1985. Its shocking revelations about the culture of the IRS led to Roth's focus on taxpayer rights and reforms.
The more I learn about this man, the more grateful.
So, then we took a step back and talked a bit about "adulting," the definition I imagine means the collective steps and actions adults take to be ready, accountable, able, and financially resilient in life. With just an hour, we narrowed our focus to the steps one takes towards saving for their future, ideally a solid retirement, outlining the ways, in America, we have available to us to achieve a healthy retirement income (many thanks to Senator Roth), ideally as early as possible for those that want retirement to come early.
This was when I introduced my seventeen-year-old son to the Club. I handed him my headset and mic and off camera he introduced himself and explained that he earned about $9,000 in 2022 working part-time at Chipotle. He managed to save $5,000 of his earnings in his new Roth IRA (a custodial account; he's a minor still). As of the lunch-n-learn, he shared his balance had climbed to $7,500. It may go down again, of course, but he explained how stoked he was with watching the market and picking investments. He's in a handful of companies he knows, likes, admires, consumes from, or follows.
He's likely to reach millionaire status well ahead of most Americans at this rate.
There are three main buckets of future savings we'll all have as U.S. workers:
The money you may get from an employer. This looks like 401(k) matches, profit sharing, shared retirement contributions or pensions (though pensions are rare to receive anymore today).
The money and assets you save for yourself will likely amount to the biggest bucket of money you'll have in your future if you do things well today to set your future-self up for a good life. This lil Club can help!
The money you get from the government will likely be one of the smaller buckets but will/should be there for you too if you pay into Social Security well, consistently, and our government keeps their end up for us.
So, when it comes to the middle big bucket, representing the savings and assets you create yourself, this is where may Roth come in to help you fill your bucket.
When you add all this up, will you have more or less than a million dollars? And by when?
A quick search of the Internet informs you that research data indicates we have about 22 million millionaires in the US. 33% are women. Why so low? Because, as I've read and recall, quoting no one study, though women are benefiting from Title IV era law preventing discrimination on the basis of sex, they're still paid less overall, they still trail the confidence men have when it comes to investing, and they will still tend to step back from their earning years to care for family more often than their male counterparts. Not true in my home, but true in America overall still. With search results like these showing it is the women making up to 80% of the purchasing decisions, and these that show women tend to be better at the vetting and homework required of investing, we (I am one) can and will and should catch up to the men soon. We have to. We talked about how catch-up contribution limits were designed originally to help women do just that. And we need the women at parity with the men or doing better; data tells us women are going to live even longer on average.
So, I mentioned, I hope coming to The Money Matters Club helps toward that goal by sharing information and building awareness. Have a daughter? Gal friend? Mom? Grandma? Make sure she's on track. Invite her here.
Is it you, reader? I'm glad you're here.
So, if you want to be a millionaire--no matter your gender--it's real cool you're here. I want that for you too; I want it for everyone I care about.
During the session I asked attendees, 'so how much do you want to pay for your first million bucks, to be counted in the U.S. millionaire tally?'
What about you? What would you want to pay to be a millionaire?
Paying one million bucks to be one isn't that great of a deal.
Want a better deal on the cost of a million bucks? Then you've got to take advantage of the time you have to conjure the magic superpower of compounding growth.
You can search up "The Rule of 72" and learn why Albert Einstein is known to have called this phenomenon "the eighth wonder of the world." It is no joke that they will say, those who understand compounding, earn it, and those who don't, pay it. They who? I don't know who they all are, just ask any millionaire about compounding. Or ask anyone struggling to dig out of expensive debt.
In my late teens and early twenties, I was in a heap of trouble digging out of the evil power of compounding debt. In my forties and fifties, I now enjoy compounding growth in the exact reverse direction which makes me feel positively powerful.
You can experience this too!
So, we discussed, to really make your dough compound you must get out of bad debt and be putting aside a portion of your money into accounts you aren't going to touch for a while, do it regularly, consistently, over time, and ensure it is appropriately invested.
Avoid the digital mattress!
I hear this often: "but I already do save so much," followed by: "when will I see it compound?"
I do not save my money in a digital mattress. What is a digital mattress, El? I now wonder if I'm the first to use this term? [She heads to a new tab to search the Internet... and only finds sleep number mattresses and purple ones you can buy online in a tube that ships to your house.]
If I'm really the first to coin this term, "digital mattress," I'd be shocked. I think of it as an online account where you see your cash digitally sitting year after year not earning or not earning much, not beating inflation certainly, not compounding much at all. In the same way as what would happen if you were putting dollar bills in or under a bed mattress. Don't do that. Really. Don't. Or don't tell me about it. Wink!
You can search up any number of mathematical examples depicting the cost of a million bucks over time, and you can pick the deal you want for yourself. Roughly, I showed a couple of these deals at our session where someone who's 40 years old who wants to buy a million bucks for the price of just $300,000 has this deal: put more than $1,000 away in good investments for 25 years. A 20-year-old intern at the office gets a different deal: stow away $190 per month for 45 years. Both will end up with a million bucks by the time each reaches age 65. The intern only had to pay $102,600 to be a millionaire though. Amazing, right?
If you're well over 40, there's still time to take advantage of this phenomenon. If you're under 20 reading this - let's go! You go, my friend! Go!
So, no matter your age, if you're earning money, do get started. When someone asks you, "What's your superpower?" Tell them the power of compounding. If you can achieve a 10% return on an investment consistently, a 10% annual rate of return will double your money in 7.2 years. The formula is universally known to be written as:
Next, I shared with the Club my formula for building real wealth. I disclaimed how it is not novel. Since about age 29, I've been 1) spending less (being frugal, paying for debt on-the-cheap, driving down my taxable income where possible, and leveraging my purchasing power strategically when I buy my stuff), I've been 2) building my wealth (once I got out of debt, I began saving every dollar I freed up from taxes, debt, and spending less for stuff by putting the freed up dollars into powerful wealth builders like retirement accounts, home equity, my Health Savings Account (HSA), and Education Savings Accounts (ESAs), like 529s and Coverdells), and I've been 3) protecting my wealth (insuring myself, my income, my net worth, and having a trust, being cautious online with my financial identity, using Multi-Factor Authentication (MFA) and strong, unique passwords, locking my social security number down, and practicing other types of good security hygiene).
The hour was passing fast, together; it came time to expand on that middle step: building wealth. For that, I returned the group's focus to the Roth-type savings accounts we have in America thanks to Father Roth.
I created this graphic below for everyone to follow along with me during the meeting. It's how I see the paths to getting yourself set up in Roth after-tax savings accounts. It can be easy to accidentally conflate the types of Roth accounts we get as workers.
There are two main paths to take when you're earning money: the path at work and the path outside of work. Start in the upper left box, then follow the arrows to what is typically found out there in America at major employers with 401(k) Plans and at most major banks in the United States.
I showed the Roth types of savings accounts in green boxes:
Then I showed the Club:
And finally, I showed the Club:
These above two images convey the 2023 Internal Revenue Service (IRS) dollar values for contribution limits and earnings limits as I understand them. The full sets of rules that govern these savings vehicles aren't shown above. At a high-level in my own words (subject to error and change/evolution) these are the general rules to know about in this table below:
Not every employer will have a Roth in Plan Conversion in addition to their Roth 401(k).
I mentioned to the Club during our lunch-n-learn together that a lot of people tell me they're saving a lot in their retirement accounts, but they have no idea what they're invested in or what to be invested in. That kind of inertia can cost you. Maybe you're paying way too much for the fund(s) you don't know you're in. You don't know either? Look up your "expense ratios" or fund fees or management fees and see, compare, act.
In general, there's going to be three tiers for investing that help every type of investor in a something-for-everyone type of way. Tier line ups are generally designed for the novice investor, the intermediate investor, and the sophisticated investor.
For the novice, there will be funds called "Target Date" funds that are managed for you for the year you are targeting your retirement. They'll be somewhat aggressive early in your life but get conservative closer to retirement without you doing anything to arrange for that dialing-it-down-a-notch activity that will happen automatically each year. Expect to pay the fund manager's premium for this one-size fits all who are your age approach.
For the intermediate, there's going to be an offering of Core funds that help you build a well stacked and diversified portfolio in a do-it-yourself (DIY) manner. You typically pay much less for this because you'll be responsible for dialing the notches up and down and rebalancing your holdings based on your own personalized objectives.
For the sophisticated and specialized, there will be a brokerage window path to the universe of investments. In employer accounts they may limit your brokerage window to just funds, not individual stocks, which can be risky and a bit irresponsible of employers to let their workers go do in some circles' opinions. In the brokerage window you can shop and build very custom portfolios as you like with what is available there. Maybe you want only socially responsible funds? Or ESG funds (meets environmental, social, and governance principles). Or maybe you want to filter for only the free/no-cost Exchange Traded Funds (ETFs)? This is your path.
I put this table together to help differentiate some considerations between the offerings in various types of accounts. These are my own non-expert words for you to consider or to help prompt your own further research:
We then did a fun exercise after learning what a Callan chart was. Search this up online if you've not seen a Callan chart before. It looks like a periodic table of elements, but it's designed to represent the existing asset classes (or the major ones) on earth and how they each performed year over year for a rolling couple of decades. It's fun to see there's no consistent predictable winner - the winners and losers are random every year. It makes the case for being diversified.
Diversification is important and we'll talk more about it in this Club of course. For now, the point was that even if you picked an asset class that's losing, to try to keep a long-term perspective about holding on to it. Buying into an asset class over time consistently, regularly, when it's up and when it's down, will help you drive down the average price per share of all the shares you accumulate. When it's down, you'll accumulate even higher volumes of shares of that investment for an overall exponential growth potential when the share value goes back up.
In sum, we talked about the ways to save in and outside of work, the importance of being adequately invested outside of a digital mattress so you can compound and double your money at a faster pace, the various investment choices you'll get in these types of retirement accounts, the specifics of the various Roth-type accounts, and the importance of diversification was touched on. We also honored the Father of Roth savings.
Thanks for reading the minutes from this great session! I hope you took something from the session or this recap that was useful for your future millionaire self. Let me know personally or by sharing in the comments below any thoughts, additional considerations, or your own experiences that you can provide your fellow Club Friends to help us all learn more (we do not share specific buy/sell tips in this Club and we disclaim that we are not experts and are not providing individualized personalized advice to anyone). The sharing is always for educational and informational purposes to boost financial literacy and money superpowers.
Because money matters,
el
E.M.Powers ("el") is a regular person with no particular financial credentials or expertise who happens to be a money enthusiast and the founder of The Money Matters Club, a virtual watercooler for like-minded individuals with a thirst for building their own financial health. Since 2006, she's helped thousands of co-workers build their financial literacy and wealth by participating in The Money Matters Club, a community she built on her employer's internal network. Since 2023, she's been attempting to scale The Club's reach through its second home on the World Wide Web. Her opinions--as well as the opinions of all participants--are just that: opinions, which are subject to flawed logic, math, typos and correction. She keeps a growth mindset and is also always learning something new or bolstering her own understanding after discussions at The Club. All information shared is done so with the best intent to inspire and empower others to learn more about money considerations toward building their own financial muscles. Nothing shared is meant as individualized advice that anyone should act on without doing their own curious research and personal decision making. There are no dumb questions at The Money Matters Club. Your financial health and literacy are what this Club cares about. All investing involves risk. All results can and will vary.
Thank you for the great information and detailed write up. So helpful when we can’t attend
Nice - very comprehensive