Smart Money Podcast: How an Investing Nerd Maxed Out Her Roth IRA

Smart Money Podcast: How An Investing Nerd Maxed Out Her Roth Ira
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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.

This week is the first episode of our new series, “How the Nerds Do It,” where we talk with Nerds about how they personally tackled the issues they write about every day. In this episode, we talk with investing Nerd Alana Benson about how she maxed out her Roth IRA.

Check out this episode on any of these platforms:

Our take

Investing can be a hard thing to prioritize — even when you write about investing for a living. Investing Nerd Alana Benson had never thought much about investing, until she realized how much it could pay off in the future.

Working several low-paying jobs didn’t give her enough disposable income to invest. It was only by increasing her income that she had the wiggle room to do so. And after saving up for a down payment on a house, she switched her focus to saving for retirement.

Now, Alana sets aside money every month for her Roth IRA and then deposits it on the first business day of the new year. By using savings buckets and a budgeting strategy, Alana is able to prioritize her Roth IRA in a way that doesn’t feel overwhelming.

Our tips

  • Look for ways to increase your income. It’s hard to invest if you don’t have enough money.
  • Prioritize your savings. Make sure you build an emergency fund first.
  • Invest for the long term. Once you have the income, start letting it work for you.

Have a money question? Text or call us at 901-730-6373. Or you can email us at podcast@nerdwallet.com. To hear previous episodes, go to the podcast homepage.

Episode transcript

Sean Pyles: Welcome to the NerdWallet Smart Money Podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I’m Sean Pyles. This week we are kicking off a series called “How the Nerds Do It,” where we’ll be interviewing Nerds about how they personally tackle the issues they write about every day. This time around, I am talking with investing Nerd Alana Benson, who is leading the series. I’m going to talk with Alana about how she started her investing journey and eventually got to the point where she could max out her Roth IRA. Alana is also going to share her advice for those who want to make the most of their retirement savings. Hey, Alana.

Alana Benson: Hey, Sean.

Sean Pyles: So glad to have you on and to hear your story about how you accomplished a great goal. Before we get into this journey, we should say one quick thing: that these are just personal stories, and the info that Alana talks about should not be taken as personalized investment advice as we are not financial or investment advisors. With that out of the way, Alana, can you talk about the beginning of your investment journey?

Alana Benson: Yeah, absolutely. So one of the first things I want to acknowledge is the privilege that I had coming into this. My dad, when he was in high school, he actually took a class all about investing. He learned all about the stock market, and that really set me up for success later in life in a way that I didn’t even know about, and that kind of gets into generational wealth and learning about finance and financial education and all of those really important things. You can see how that journey starts with him way back in high school.

So I was never interested in investing personally until I became an investing writer, which is kind of a funny journey, but my dad actually started a Roth IRA for me when I was a little kid, and he contributed to it regularly. So he had all of this institutional information that he wanted to pass on to me, and I just never really understood it or was interested. But I started off on this track with a huge amount of privilege, and I had this account set up for me — I just didn’t have the money personally to be contributing, and so that’s what I’m going to talk about is how I started contributing to that and to a 401(k) later in life and how that process really began for me.

Sean Pyles: So you mentioned that your dad set up this Roth IRA for you and that you weren’t really interested in investing. Was investing something that your dad would talk with you about and you kind of tuned it out? Or was it more him doing this, and you were kind of getting the benefit while not actively engaging with it?

Alana Benson: I think he did try several times to get me excited about it and interested, but as a teenager, I think it’s really hard to feel excited about something like that. You just have different things going on that you’re focusing on. So I think I did kind of tune it out, and I also think that when he tried to talk to me about it, the language that he used was really kind of confusing for me, and it didn’t make me feel excited about it. There was a lot of things about compound interest and Roth IRA; there were all of these terms that I didn’t know. I think starting from a place of like, “Hey, do you want your money to just make more money all on its own?” is a really great entry point, right? Because who is not interested in that?

Sean Pyles: Yeah. He was maybe getting caught up in the more technical language without really breaking down simply what it means for you and your wealth over time.

Alana Benson: Exactly.

Sean Pyles: OK. But then things changed as you grew, especially once you started at NerdWallet writing about investing. Can you talk about that moment?

Alana Benson: So before I got to NerdWallet, I was working a lot of low-paying jobs. I was bartending, I was waitressing, I was a substitute teacher. I was really cobbling my income together, and I also just never had enough money to invest to begin with. And I think that we have a lot of really great information on our site, and we talk a lot about once you have money, what you can do with it and all of the great ways you can prioritize it. But one of the fundamental things is that if you don’t have enough money, it’s really hard to start investing in a meaningful way that you’ll be able to build a retirement account on. I think that is a central point that we need to remind folks of. If you don’t have the income, don’t feel bad about not investing yet.

Sean Pyles: Right.

Alana Benson: Because it’s really hard to do that, and so I went from these lower-paying jobs, and then all of a sudden I got a job at NerdWallet. Not only was I making a much higher income, but I was working on the investing vertical, so I was reading and writing about investing all day every day. And so I was getting all of this knowledge while I was at my job, which is an advantage that most people don’t have. But it was really the income thing that made such a big difference, and so suddenly I was getting paychecks where I could pay my rent, I could pay for my groceries, I could do all these things, and then I still had money left at the end of the month and I was like, “OK, what should I be doing with this now that I actually have it?”

Sean Pyles: Well, I think you’re right that if you are barely scraping by and maybe able to cover your necessary expenses like food and rent, and that might be about it — it can be very hard to invest or feel like you have enough to invest. But I will say that folks can get started investing with even $25 a month. They don’t need hundreds of dollars left over at the end of each pay period to feel like they can invest.

Alana Benson: And that’s definitely true if that’s what you can start with now, that’s a great starting point. And it is likely that over time your income will increase, and as your income increases, it’s great to increase your contributions as you go along.

Sean Pyles: Mm-hmm. How do you think about the amount of money that you invest from your paycheck now?

Alana Benson: I don’t necessarily think about it as like a dollar amount. The recommendation from NerdWallet is that you should aim to save about 15% of your income for retirement, and I’m not quite there yet. I think I’m saving typically about 12%, but that’s because I am working on other financial goals as well. And really, once I started at NerdWallet, the things that I did was put some money away into certain buckets. So I beefed up the very small emergency fund that I had at the time, and I made sure that I was contributing enough to my 401(k) to get the match that NerdWallet offers, so that way I was getting double the amount: what I was contributing plus what NerdWallet puts in.

And a lot of times when we talk about contributing 15% of your income to retirement, people don’t realize that that employer match — that counts towards your 15%. If you have a 4% match, and you put in 4% and your employer puts in 4%, you’re actually already up to 8%. Then you just have to save the remainder on top of that to reach that 15% goal.

Sean Pyles: You contributed to the 401(k) to get the match and then did you move to the Roth IRA contributions after that? That’s often one approach that financial advisors will recommend.

Alana Benson: All of this information I was getting from our NerdWallet content. I was reading and writing and living it all the time, so I was absorbing a lot of that information for myself, and I was using that pretty heavily. So I created a system for myself, and I really only realized that it was a little crazy while I was actually preparing for this podcast, but just hear me out.

In my first year at NerdWallet, I was trying to buy a house, so I wasn’t putting a lot of money to contribute to my Roth IRA. I was really putting that money towards saving for a down payment. So I think it was 2020, but I didn’t contribute at all to my Roth IRA that year, but I wanted to create a system where I could save up all year, and then on the first of the new year, I could drop in the full amount because with Roth IRAs, they have an annual contribution limit. I could only add $6,000 a year. You don’t have to put that full amount in or do it all at once, but I just wanted to make a system that worked for me where I’d already have the $6,000 for the new year on January 1st because the earlier you put money in, then the faster it can get into the market. It’ll have a full year to grow and then spend the following year saving for the next January 1st. So it’s a little convoluted, but it works for me.

So at my second year at NerdWallet, what I started doing is, I have a bank account where you can divide your savings account into different buckets. So it’s all in the same savings account, but you can visually see, “Oh, I’m saving for a vacation, so I’m going to label this bucket ‘vacation,’ and I can put money into that bucket.” So I have a Roth IRA bucket, and every month I put a little bit of money into it. I think I was contributing about $250 per paycheck, and I put that into my savings bucket so that when January 1st of the next year hit, I was able to put that full amount of money in right on the first of the year. Then, I’ve already contributed for that calendar year, and I could immediately start saving for the next year.

And the reason that I put it into a bank account instead of directly into my Roth IRA is just so that I could stay organized a little bit better with my bucket system. I can see everything in the right place. Plus if I wanted the money to be contributed for 2022, I couldn’t put it into my Roth in 2021 because of those contribution limits. So it may not be the best system for everyone. And like I said, I sort of realized how convoluted it is while preparing for this, but I just wanted to set myself up so I wouldn’t always have to be stressed about saving for the year that I was in.

And I think that’s another important part of this, whether it’s a convoluted system or not, it works well for me, and it works well for my brain. And I think that’s really important because if you are developing a system for yourself, the most important thing is that it works for you. It doesn’t matter if it’s hard to explain to other people, right?

Sean Pyles: You’ve mentioned that you made a trade-off to focus on building a down payment for a house one year and then the next year you shifted to focusing on saving and contributing to your Roth IRA. Did you make any trade-offs to hit that $6,000 goal? Were there any things that you didn’t do to focus on hitting that number?

Alana Benson: I wanted to be saving for all of these different things. I want to have a really, really strong financial cushion or emergency fund. I want to have money to go on vacations. I’d love to be able to max out my 401(k), so I think it’s going through that list of priorities and saying, “OK, what’s the most important thing for me to do right now?” Maybe a financial advisor would say, “OK, making sure you take advantage of a Roth is maybe more important than saving really aggressively for a down payment on a house.” I could have saved for a down payment over the course of more time and then also contributed to my Roth, but for me personally, it was really, really important to get that down payment as quickly as possible so I could get into a space that was my own.

Sean Pyles: Right. Well, there would’ve been a big opportunity cost to not get in the house when you did because houses are more expensive now, but also interest rates are higher as well.

Alana Benson: Yes. Although I didn’t know that at the time, but it has worked out pretty well in my favor.

Sean Pyles: Right.

Alana Benson: But I think another really important thing to take into consideration is that there’s no perfect science, and there’s no perfect formula. There’s a lot of great recommendations of the order of operations. What do you do first? What do you do second? But you have to take into account your values and what’s going to be important for you. If you have really high interest debt, that might play a really big factor. If you have kids, that’s going to be another factor. So you have to think about these recommendations inside the perspective of your own life and what’s important to you.

Sean Pyles: Right. I also want to talk about the Roth IRA account that you have. Are you still contributing to the very same one that your dad set up all those years ago?

Alana Benson: I am, yes.

Sean Pyles: Did you ever think about shopping around and maybe contributing to a different account? Because there are so many different companies that offer Roth IRAs. How did you think about that?

Alana Benson: I did think about it briefly, but I also know that if you switch brokerage accounts, you can be charged fees sometimes. But I was really happy with the brokerage that I was already in, and so I decided to just stay with it to just keep things simple. But there are absolutely opportunities. If you’re being charged really high trade commissions, there are brokerages that offer $0 commissions, and so there may be opportunities to have some good savings, maybe get some lower fees if you switch. But for my case, I was pretty happy with it.

Sean Pyles: That makes sense. I mean, it would be kind of a hassle to uproot everything that’s been established over all these years. If you think the account is fine as is, there’s not really much of a reason to go to a new company.

Alana Benson: Yeah. But one of the things I started doing differently, is that my dad, the way that he grew up and started investing, is he invests primarily in individual stocks. And so when I first kind of took ownership of this Roth that he had started for me, there was a lot of really heavy investments in individual stocks. And what I know, as an investing writer, is that that strategy is really high risk, and so what I started doing is, I started investing in a very low-cost index fund that tracks the S&P 500.

And so for folks that don’t know, an index fund basically just mirrors the index that it tracks, so there’s the S&P 500, which is a collection of 500 of the biggest companies in the U.S., and that tracks the performance of all of those companies as a collective. So an S&P 500 index fund mirrors that, and it basically invests you in all 500 of those companies. And so, however the S&P is doing is how your index fund will do. And this is a really well-diversified investment. It puts you in a lot of different companies. It takes the risk down. So if one of those companies that my dad had invested in went out of business, then that would mean I would lose all the money that was in that investment initially, but if I’m in an index fund, and one company goes out of business, I’m still bolstered by all the other hundreds of businesses that I’m invested in.

Sean Pyles: It seems like there’s been a role reversal of maybe you are now teaching your dad about how to invest.

Alana Benson: I have mentioned that to him. I’m like, “You know this is a really risky strategy, right?” And he’s like, “Well, you know.” He has his reasons. He likes to really look into every single company and look at their financial statements and see how well they’re doing, and I just take a different strategy than him, and so we have joked about that.

Sean Pyles: Mm-hmm. That’s funny. I would love to hear your advice for folks who are looking to start investing or maybe aren’t sure how to prioritize investing their money.

Alana Benson: So I think it really goes back to honestly having the money. Sometimes there’s not as much maneuverability in that area as people would like. It’s really hard to get a new job. It’s really hard to go from a lower-income job to a higher-income job. I applied to hundreds and hundreds of companies before I got a job with NerdWallet, all while I was working service industry jobs.

One of the biggest things that I found was just increasing my experience. I would take freelance jobs that weren’t perfect. It wasn’t the dream job, but it would give me a little experience in social media or graphic design, and when I went to apply to NerdWallet, I had just a variety of experience that made me stand out as a candidate. And so even if you can’t switch jobs right now, there are things you can do to increase your experiences. There’s a bunch of free online courses. I took several through Coursera and Udemy, and those just helped me bolster my resume.

Sean Pyles: Right. Well, now I want to hear your takeaway tips for our listeners.

Alana Benson: Yeah. So the first one is that, again, like I said, it’s just really hard to invest if you don’t have the money. So if you want to, but you can’t, number one — don’t feel bad — but number two: Look for ways to increase your income. The second is to prioritize your savings. Just make sure you get your money in that emergency fund first because as we’ve seen with COVID, you just never know when something unexpected is going to happen, and you might need it. And three, invest for the long term. So once you have that income, let it start working for you and set up a regular investing habit where that money just goes automatically from your bank account to your investment account so that you don’t even have to worry about it; your investing habit is just automated a little bit.

Sean Pyles: Great. Well, thanks for sharing your story and your advice for listeners.

Alana Benson: Absolutely. And that’s all we have for this episode.

Do you have a money question of your own? Turn to the Nerds and call or text us with your questions at (901) 730-6373. That’s (901) 730-NERD. You can also email us at podcast@nerdwallet.com. Also visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate and review us whenever you’re getting this podcast.

Sean Pyles: And here is our brief disclaimer, thoughtfully crafted by NerdWallet’s legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes, may not apply to your specific circumstances.

Alana Benson: And with that said, until next time, turn to the Nerds.

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