Halal Money Matters Podcast

Episode 03 – Investing for Retirement

CHRISTOPHER PATTON: Alright, welcome to Halal Money Matters, presented by Saturna Capital. I’m Chris Patton, Saturna’s Cultural Attaché and I’m here as always with Monem Salam.

MONEM SALAM: How are you doing, Chris?

CHRISTOPHER PATTON: I’m doing great, how are you?

MONEM SALAM: I’m doing well. We’re really excited about having our guest today.

CHRISTOPHER PATTON: Yeah, we got a ringer here for the first time. You wanna introduce him?

MONEM SALAM: Sure! Owaiz Dadabhoy, welcome to the show.

OWAIZ DADABHOY: Thank you, it’s great to be here.

MONEM SALAM: Owaiz is our Director of Islamic Investing at Saturna Capital and we have a very exciting topic today. Most people always think about this topic through either work or what they wanna do when it comes to retirement, so we thought we’d have an expert who’s actually gone around the country talking about this subject itself. And has heard all of the questions under the sun that come up when it comes to retirement. So, I’m really excited to have Owaiz here and to talk about the specifics of how a Muslim can retire in a Halal way.

OWAIZ DADABHOY: It’s always great to have a great audience and also coming up here to Bellingham, Washington, the headquarters of Saturna Capital. I would encourage people to come visit us; it’s a beautiful place.

MONEM SALAM: Especially in the summertime.

OWAIZ DADABHOY: Yeah, exactly.

CHRISTOPHER PATTON: And where are you located? Kind of centrally.

OWAIZ DADABHOY: I’m in southern California, specifically in Orange County.

MONEM SALAM: So, tell me, Owaiz, how often do you travel? I mean, you must have like a million miles or something a year? Or…

OWAIZ DADABHOY: I typically travel two times a month, sometimes a little bit more, just depends on, you know, where we’re going to make a given educational talk or if there’s a conference coming up where we can speak to a wider audience.

MONEM SALAM: And is this something… do you initiate the talks? If our listeners want to have you over, what do they have to do?

OWAIZ DADABHOY: Yeah, we do get invited. Like I said, at conferences, at MSAs, even, and at mosque that want to have us come out and talk to their audience. You know, a lot of the mosque throughout the country have Friday night programs or Saturday night programs and this is one of those topics that people want to hear about. They’re not told about in college or even high school. So, once this goes out there, word of mouth spreads and the other mosque want us to come out as well.

MONEM SALAM: And if one of our audiences want, they can directly email you at OMD, that’s Owaiz Muhammed Dadabhoy, [email protected].

CHRISTOPHER PATTON: I’m curious… I mean, no matter how many times you talk about this topic, you probably see a lot of open eyes and people realizing that they might want to make changes in their finances. Do you feel like that’s true?

OWAIZ DADABHOY: It is true, and it’s actually… I always thought that the young people would not respond to it well, especially if you talk about retirement. But when you talk about the fact the earlier that you start in life, the more you can have in retirement, their eyes do perk up because the person that’s 40 years old, that’s about to start saving for retirement, and hopes to retire at 60 or 65. It’s a dream of theirs. They’re having to put in thousands of dollars a month or 15-20 thousand a year to get to their retirement goals, whereas the 22-year-old can put in hundreds of dollars... just starting early is the most beneficial part of investing or saving for anything.

MONEM SALAM: I guess that’s what you’d tell your younger self, right? Start earlier?

OWAIZ DADABHOY: Well, I was lucky, and I tell this story… that a manager is not allowed to force you to go into a 401(k) but mine did.

CHRISTOPHER PATTON: Oh, really...

OWAIZ DADABHOY: I was 19 years old, worked for a large financial services company. And she told me that you will put in 10% of your salary into this, even though I’m not allowed to tell you that. But you’re going to do it and you’re going to thank me later. And I still remember her more than anyone else at that company, thirty years later.

MONEM SALAM: That’s the best gift she ever gave you I guess, right?

OWAIZ DADABHOY: It was the best financial decision somebody else made for me.

MONEM SALAM: That’s pretty cool. And sometimes, you know, when I was in college, I started saving as well. And, you know, my thought was to be able to do it as far as retirement, but you know, about five years out of college an emergency came up, and I had to use all the money. But it was fine because if I hadn’t saved it, I wouldn’t have even had it. So, some people think of retirement as the golden handshake and you walk away and you do nothing for the rest of your life, but… I think for emergency purposes it can work as well.

OWAIZ DADABHOY: On that point, what we find is we manage about a 170 401(k)s throughout the country for non-profits and mosque and doctors’ offices and large companies. And what we find is that they come back to us, the people that are participating in this 401(k), three or four years later and they say, “Hey how do I take out that loan that was mentioned? Because I’d like to buy my home.” So, we see people having the largest chunk of their money in this 401(k), so what I try to tell people is yes, start putting in money to the 401(k). You can’t envision it right now, like I can, because I know it’s gonna happen for you. You’re gonna save up hopefully a mountain of money, but what I’d like for you to do is take some money and do that outside of your retirement as well. So, when you need to pull money, you’re not pulling from your retirement account. But if you need to, you can take a loan against your 401(k).

MONEM SALAM: And I think we’ll get into that a little bit further when we specifically talk about 401(k) because that’s a good point. I mean, do you wanna take money out of your 401(k) to be able to buy the house? And even if you have enough money, do you take it out and then you have to pay yourself back with some interest rate. So, we’ll talk a little bit more about that later, and whether you should do it from a financial perspective, and whether you can do it from an Islamic perspective. One thing I was gonna ask you, and then we’ll get into specifics. You know, a lot of people, when you give general seminars to audiences, they haven’t even thought about retirement. So, I would assume that’s the case in the Muslim community also. You’re doing a double education, so you’re not only talking about retirement but then you’re also talking about how to make sure that that retirement is Islamic or according to Shariah guidelines. So, do you find that? Or most people are pretty familiar with what one or the other is?

OWAIZ DADABHOY: When I first started, back in 2008, making a presentation here or there, just getting started, what I realized pretty quickly is if you don’t educate, inspire, and motivate people to save for retirement, they’re not going to do that because they haven’t done it in the past. But, what I do find is that when you encourage them and talk to them and talk about specifically the three legs of the retirement stool, right… and in the past, maybe our parents or our grandparents they would have a pension plan that their company would pay for them. Look, work for 20 years or 25 years and at the end of it, we’ll pay you $2,000 a month or $3,000 a month, and you may still get Social Security. Right? And if you had any savings, that’s great. So, the three legs of the retirement stool are pension plan, 401(k) or your own savings, and Social Security. The problem is, and most people don’t know this, and this is where we really have to educate people, is one of those legs is now gone. The pension system is no longer there unless you’re a congressperson or a fireman or firewoman, or a policeman, etc. So, if you take that one out, now imagine, I’m a relatively big guy, trying to balance myself on a two-legged stool, right? It’s not gonna be that easy. The second part of it is Social Security income. There’s 40 million Americans getting regular Social Security income. I’m not talking about disability or your parent dies and a 4-year-old is getting Social Security income. There’s 40 million regular Americans that retired and are getting Social Security. You know what their average income is? Average? $1,400+. Just over $1,400. So, when I go throughout the country and I talk to somebody in Texas or in New York or Florida or Ohio or Southern California, the first question I ask them is, “How much is your rent?” Imagine living off of $1,400 a month. Where are you gonna buy your food and actually have the retirement of your dreams?

MONEM SALAM: So, the Social Security system was actually founded in 1948, and now most people in America are living until about 84, is the age for women. Do you know what the average mortality rate was in 1948 when the Social Security system was started?

OWAIZ DADABHOY: Probably something around 60.

MONEM SALAM: It was 55. They basically were counting on your never using that pension system. So, it was a great tax on the American people that they would never accumulate. Now it’s completely turned upside down. So, you know, whether it’s gonna be around… I think it will be, but at the strength that it is now? Or even weaker? Probably that’s what’s gonna happen. That’s kind of something to think about as well.

CHRISTOPHER PATTON: Well, it’s enough of a question mark that we’re incentivized to take responsibility for it yourself to the extent that you can, while you can.

MONEM SALAM: Yeah, true. Alright now let’s get a little bit more specific about different types of plans. Where should we start first?

OWAIZ DADABHOY: Well, so we have IRA accounts and I think everyone has heard of an IRA. It stands for Individual Retirement Account. It’s your own account. And so, each person can own one, as long as they have some type of earned income. And this is a good way for people to start off when they’re first starting, even if their company doesn’t offer a 401(k), open up an IRA account. And if you’re young, you put in money to a Roth IRA, you can save over a long period of time.

CHRISTOPHER PATTON: When you say Roth, can you explain that?

OWAIZ DADABHOY: Yeah. So the Roth IRA is going to allow you to pull out money in retirement without paying any taxes on the gain, which is a huge benefit to Americans because as we know, we get taxed on everything, so this is one of those opportunities that you won’t get taxed. It’s so good that they won’t allow people over a certain income limit to have it because there’s too much benefit to them.

MONEM SALAM: So, explain a little bit more about taxes. Is there any benefit on the way in and on the way out? Or how does that really work?

OWAIZ DADABHOY: So, a Roth IRA, when you put money into it, is your money after tax. You’ve already been taxed, it’s coming out of your checking account and you’re writing a check and you’re hoping to grow this over time and so imagine you put in $200,000 over the life of this Roth IRA and now it’s become… this is just a hypothetical, it’s become $500,000. So, if that $500,000, any other scheme in America, any kind of account that you have, $300,000 is going to be taxed. So, out of that $300,000, you might be taxed $80,000 or $100,000. But in the Roth IRA, you won’t be taxed on any of that money, and all of that money is going to come to you. But on the other side, there’s the traditional IRA. The benefit is you get to deduct this on your taxes today. So, if you put in $6,000 which is the annual limit, you will be able to deduct that. Most people can deduct that on their taxes and so you might save $1,200 to $2,000 depending on your tax bracket. And there are income limits on that as well. But on this one, when you retire, you’re gonna… every time you pull out money, you’re gonna be taxed on that.

MONEM SALAM: So, Chris, have you ever thought about doing the math on what’s better for you? Like a traditional or a Roth?

CHRISTOPHER PATTON: Yeah, I don’t mind saying that I’m doing traditional. Roth certainly sounds attractive, but I have not experimented with actually doing it because to me, psychologically, I think the… I recognize that the benefit would be greater later, but I often think, “You know, maybe this is the year I switch to Roth.”

MONEM SALAM: And you know… I never thought about this until you brought it up just now, but a lot of people think for example, if you were doing this in a regular 401(k) or IRA, but let’s supposing you have $100,000, you think you have $100,000 but you really don’t, cause when you pull it out, you’re gonna get taxed on it, right? So, you’re gonna have much less than that.

OWAIZ DADABHOY: So, when I started my 401(k), there was no Roth 401(k), in fact there was no Roth IRA back then. I’m not that old, but still. There was none of those things. Now, what I tell people is, in the beginning of your career, when you’re not being hammered by taxes, if taxes are not really a concern to you, go ahead and put money into the Roth IRA, or Roth 401(k). At some point, you’re going to notice your paycheck and it’s going to have a huge amount of tax that came out and you’re going to say, “How do I save myself from some of these taxes?” At that point, you can switch over to the traditional 401(k) or the traditional IRA. Now, the benefit of this is when you retire, let’s say you’re 62 when you retire, and that particular year you still have some income coming in. So, what you’re gonna do is you’re gonna say, “Look, my tax bracket is a little bit high. Let me pull out money from my Roth bucket, because I have money in my Roth piggy bank, right?” So, you’re gonna pull money from there. When you’re 68 and you no longer have any income, your Social Security income is not that much, you’re not being taxed a lot, you can take it out of your traditional 401(k) or traditional IRA, you’ll get taxed but you’re gonna be at a lower tax bracket. It is nice to have two buckets of money. I wish I had that, but I didn’t have that opportunity when I was younger, when I was paying less tax.

MONEM SALAM: So are you basically saying that there’s a traditional IRA and a 401(k) and there’s a Roth IRA and a Roth 401(k).

OWAIZ DADABHOY: That’s right.

MONEM SALAM: So, are you saying maximize both?

OWAIZ DADABHOY: The issue here is that some employees do not have an option of having a 401(k). Because a 401(k) is employer sponsored. If your employer doesn’t have a 401(k) for you, then you don’t have an opportunity, so you’ll go to Saturna or to some bank or some investment company and open up an IRA instead. Okay, so if you have a 401(k), the benefit of that is it comes out of your paycheck every two weeks. If you get paid every two weeks, it’s going to come out of there. There’s multiple benefits of this. I once was at a conference and this young lady came up to me. She said, “You know I opened up an IRA with your company four years ago, and every year I forget to put money into it. Every single year!” The money that you put in, the beginning, because of compounding returns, is gonna be much more valuable later. In fact, Einstein is attributed to have said that the greatest force in the universe is the power of compounding. Right? So, those first dollars are really important. So, one of the benefits is that the money’s gonna come out every two weeks. That means you’re buying at different levels of the stock market. If you’re investing in stock mutual funds. The other thing is if you have a traditional 401(k), it’s lowering your income every two weeks, so if you get paid $2,000 every two weeks, if you put in $500, you’re only getting taxed on $1,500, and it’s automated. It’s every single two weeks and this is how you really grow your money in America. Unless you’re a business owner, having a lot of business come your way during good times, this is the way for the typical American to save. Whereas the traditional and the Roth IRA, you’re going to have to set up an automatic contribution. It’s gonna come out of your checking account instead of your paycheck.

MONEM SALAM: And so, now, is there anything else that we, as an average investor, different type of plans that we can think about to saving for retirement? I mean, I know that my parents, for example, their house is a big part of their net worth, is embedded in their house, and they own it 100%. Is that a tool for retirement or is that something that you should just forget about because…

OWAIZ DADABHOY: There are many people that save using real estate. And when home prices were much lower in a lot of parts of the country, it was feasible to do. One of the beauties of investing in mutual funds is you can start off with $100. Whereas if you want to buy a property, you’re gonna have to have a significant amount of money, even to have a 5% down payment. So, what I would recommend is, look, don’t wait to have money saved up. At least get started in some type of mutual fund investing, build up your nest egg, then if you wanna go buy a house as one of your investments for retirement, that’s great. In fact, I know people in Southern California that retired at 50 and they’re just managing their seven or eight properties and that’s their retirement living. They’re just going around checking if the home is fine and collecting their paychecks. So that’s a great way to save for your retirement as well.

MONEM SALAM: Switching a little bit over from the retirement and talking a bit about Shariah compliant investing… Sometimes I get calls and people are like, “Well, I put my IRA in a bank. Is that halal? And I get a statement saying it’s interest.” So, how do you go about making sure that your retirement money is also halal?

OWAIZ DADABHOY: I used to work at a bank. And that was many years ago. Once I realized what was going on with interest and usury and what not… I started when I was 19 as I mentioned earlier. Once I realized that, I figured out that I have to move somewhere that I can still use my financial services experience but use it in a way where Muslims can also benefit and so that’s how I came to this company. The difference is, if you put money into a bank IRA, you’re getting a fixed rate of return. Either it’s gonna be a savings account, which is a little flexible. It’s gonna give you half a percent, or you can put it into a CD and get 2 or 3 percent. So, one thing is you’re using interest, but the second thing is you’re really lowering your performance and there’s three different important pieces for saving. One is your diversification. One is your return. And the other one is time, right? So, you’re missing out on one of the key components which is the return. You’re really limiting that. But you can also go, and you can say, “Look, whichever bank or investment company and instead of opening up a bank IRA, I’m opening up an investment IRA.” Now you have to determine what fund you wanna buy and which stocks you wanna buy. There’s 10,000 different options so if you wanna keep it simple and go to a company that has funds based on Islamic principles since 1986, it’s vetted. Most of the scholars have accounts with us as well. Cause it’s tried and tested. This is a way to do it to make it easy for yourself.

CHRISTOPHER PATTON: Are people surprised to hear that it’s even possible to take a retirement account and have it be halal? Or is it… “I thought these were my only options?”

OWAIZ DADABHOY: Some of the people we talk to have never heard about Islamic investing before. Still, surprisingly, even though we’re out there for 30 plus years, giving talks wherever we possibly can. There are people that haven’t heard about it and what we find is that once they hear about it, they almost drop everything to try to get into it. And that actually brings me to another point. So if you’re an employee at a technology company or a doctor’s office and you have a 401(k), there is a way to invest in halal funds and the way to do that is to ask them to either add one of the funds to the lineup, which is really difficult to do, because they typically have 10 to 15 on a lineup, so adding one fund that they don’t really know about, is difficult. But instead you can ask them to open up a brokerage option, which really doesn’t cost the company anything but gives you access to the mutual funds that you’d like to choose.

CHRISTOPHER PATTON: Do you work with employees, or groups of employees, to achieve that? Do you get that request? To take a more hands-on approach with here’s what you should do and are you available to do that?

OWAIZ DADABHOY: Typically, we get calls, maybe a couple of times a month, from people that work a company. They know they want Shariah compliant or Islamically based mutual funds and they don’t have access to them in their 401(k). They’re ready to stop their 401(k) once they realize the importance of saving according to your principles. So, we do talk through it, how they can approach their HR department or their 401(k) department at their company if it’s a large company, and what kind of conversation to have with them. So, we’ll walk them through it. It usually takes three or four conversations before they feel they can take that step and go talk to HR.

CHRISTOPHER PATTON: Sure.

OWAIZ DADABHOY: One thing people can do, if they don’t have access to Shariah compliant funds in their 401(k) is simply open up an IRA account. You can do that and you won’t be able to save $19,000 per year, but you’ll be able to start putting in $6,000 a year and then continue to have that conversation with your employer because they want you to invest in their 401(k) so they can pass their discrimination test at the end of the year. The more people that put money into a 401(k) at an employer, the better it is for the highly compensated employees because they can put in the maximum $19,000 per year. 

CHRISTOPHER PATTON: So, you would say, you know, you dream about having a Roth 401(k), but you don’t have the option. That doesn’t mean wait for it. You can take steps now and then open that account later and then you have the different buckets that you’re talking about.

OWAIZ DADABHOY: And you should absolutely do that. I’ll give you a quick example. If you’re a 25-year-old and your employer doesn’t have the Roth or they don’t have the 401(k) option with the funds that you want. So, you go and open up an IRA account, and you put in… let’s say last year’s numbers, because that’s the last time I did this calculation… $5,500 into your IRA account. $5,500, you’re 25 years old, and you’re going to retire at 65, so you have 40 years… and so in those 40 years, you’re putting in $220,000 and if you have an assumed rate of return. This is just an assumption, it could change, but the average of those years is 7% per year. You’ll end up with just over $1.2 million. Now, that’s a great number. That’s something we can get into if you want to later. But if you wait, and you say, “Look, I’m 25… my company doesn’t offer the 401(k) with the funds that I want to purchase so I’ll wait until they do that…” and it takes you ten years to get that opportunity. So now, you’ve wasted 10 years, right? Remember, Einstein saying compounding is the greatest force in the universe… you’ve wasted those 10 years which means you did not put in $55,000. First person put in $220,000… you put in $55,000 less. But the first person ended up with $1.2 million… you ended up with $559,000… just for missing $55,000 worth of saving in those ten years.

MONEM SALAM: The early years really matter a lot, huh?

OWAIZ DADABHOY: They absolutely do.

MONEM SALAM: Let’s go to a topic that I told you I’d come back to you. And that’s supposing let’s say I’ve been saving for ten years, right out of college, and now I have a pretty significant amount, let’s say about $100,000 or $150,000, and I wanna be able to borrow that money. You mentioned something about borrowing money from a 401(k)… to borrow money out of that 401(k) to be able to put a down payment on a house. Is that something you’d recommend from a financial perspective?

OWAIZ DADABHOY: If that’s the only place you’re gonna have money because you didn’t listen to my advice ten years before and have a non-retirement account as well… cause I really think that, look, if your money… think about that 25 year old that built it up to $1.2 million. If they pull out money early on, that money is not going to grow for them, right? Because that rate of return of about 7%... you’re doubling your money every ten years. So that $50,000 loan that you took, that was going to become $200,000 in twenty years, is not going to do so. But… if you do want to take a loan that’s… some people do that, and that’s the only option, and you know, I think home ownership is very important in America. That was the second-best financial decision I made. The first one was made for me. So, I would say go ahead and do it if you really need to and that’s the only way you’re gonna be able to buy this home, and the way it works is if your employer has a 401(k), you have money in it, you have at least $50,000, you can borrow up to $50,000 and either take a personal loan or a loan to buy a home. And the difference is if it’s a personal loan, it’s a shorter-term payback. You have to pay it back sooner. If you’re taking it out to buy a home, then you can have a longer period of time. And you are gonna be charged an additional amount. You can call it interest if you’d like, but it’s going back to you. So, if you’re making a payment of $200 a payroll, and you’re gonna have this for five years, some of that $200 is interest that you’re paying yourself back.

CHRISTOPHER PATTON: I don’t think I knew this. On a loan out of a 401(k), the added amount that you’re paying back is going into your account…

OWAIZ DADABHOY: It’s going back into your account and the reason they do this is you missed out on a return from your money being in the 401(k) so you’re paying yourself back, so you don’t miss out on that portion of it.

MONEM SALAM: Do you know how much that interest is, roughly?

OWAIZ DADABHOY: It depends on what the rates are throughout the country. So, when rates were higher, it was 8 or 9%. These days, if you do it, it’s probably closer to 4 or 5%.

MONEM SALAM: So, it’s based on the bank rate, or a mortgage rate.

OWAIZ DADABHOY: That’s right.

CHRISTOPHER PATTON: Interesting.

OWAIZ DADABHOY: Prevailing rates.

MONEM SALAM: You also mentioned there’s a cap? You can’t take all of the money out to take a loan?

OWAIZ DADABHOY: That’s right so if you’re trying to buy a home in Dallas, Texas for $225,000, your first home, and you have $400,000 in your 401(k), unfortunately you can’t buy that with cash. You’re gonna be able to borrow a maximum of $50,000. There is something else to keep in mind. If you leave that employer, that money is gonna come due typically in 90 days. So, if you paid off $15,000 of this $50,000 and you left that employer, you need to pay that $35,000 pretty quickly.

MONEM SALAM: Just out of curiosity can you borrow from an IRA also?

OWAIZ DADABHOY: You cannot borrow from an IRA typically. So, what you’re gonna do there is you’re gonna make a withdrawal if there’s a hardship or you’re buying your first home. So, you won’t pay the penalty on it, but if it’s a traditional IRA, you’ll pay taxes on the withdrawal, just like you would have in retirement.

MONEM SALAM: So really that’s another benefit maybe for a 401(k) maybe, to be able to put your money into….

OWAIZ DADABHOY: That’s right. I mean not only can you put in more money, not only does it automatically take your income and lower it, but you can also take a loan against it.

CHRISTOPHER PATTON: If you pull money out of an IRA before retirement is the tax burden greater, or is it essentially the same no matter what your age is?

OWAIZ DADABHOY: That’s a really good point, because if you’re 43, let’s say, and you have a much higher income than when you were 23, so you may be in a higher tax bracket. So, when you pull it out now, at 43, you may be in the highest tax bracket you’re ever going to be in, versus when you’re 63 and you only have Social Security income. So, there is going to be that detriment as well pulling out money from there.

MONEM SALAM: I did want to mention something about the part of the loan and that there is a hadith of the Prophet that says within the family there is no interest. When you take money out from a 401(k), and you end up paying it back, which is really important that you’re paying yourself back and not the 401(k) provider or the bank, although that’s considered interest, that is halal. You know, as we begin to wrap up, Chris I don’t know if you have this kind of question that comes up in your mind, and that is… give me one number that I need. Is there one number, a simple calculation that I can make to be able to come up with that number?

OWAIZ DADABHOY: If you talk to a financial advisor, they’re gonna tell you look… the last salary you have before you retired… take 70% of that and you’ll need that every year. So, let’s say your last salary, just for round numbers, is $100,000 at age 59 and retire, you’re lucky…

MONEM SALAM: Let’s use a million because I think Chris will probably be at a million salary.

OWAIZ DADABHOY: So if you’re 59 and you’re lucky enough to retire at 60, and you have $100,000 when you’re 59, you’re gonna want at least $70,000… now why is that? What if you’ve paid off your home? Do you still need to have a good amount of money? Yes, because you’re gonna pay property tax and you’re gonna have all kinds of insurance that you’re paying. I like to say the hot water heater is gonna go out and it’s gonna cost you $1,500. That’s happened to me a couple of times and the cost have gone up over time. So, you definitely want to save up a good amount, and I like to tell people. This is not a get rich quick scheme. We’re talking to you about saving from starting at age 19 or 25. All the way until retirement you’re delaying gratification on some amount of money but it’s going to do you a lot of good later on. So, if you get to that $1.2 million, and again let’s make it round numbers. Let’s make it $1 million. And you’re getting a 7% rate of return. Even in retirement, let’s just say you’re getting this average of 7%. So, you pull out 7% per year in retirement, right? After the age of 59 and a half. How much money are we pulling out of that million? It’s $70,000 per year. And if you’re still getting that 7% return, you still have a million dollars. So, if you can still fund your life and then at the end of your life, you have a living trust or will and you’re able to give this million dollars, part of it to your grandchildren, your children, and your favorite charity… what a legacy to leave.

CHRISTOPHER PATTON: And I, in a prior episode, talked about my past ignorance about, “Ohhh I’m gonna live cheaply what do I need money for? I’m not gonna go anywhere, I don’t need a boat…” but just working in this industry has opened my eyes to hearing like you speak about it and realizing oh no… I’m actually gonna need to pay for health care and this and that and this… and it does sound much nicer to have a legacy than to just resign yourself to living on nothing.

OWAIZ DADABHOY: Expounding on the idea of, “How much money do I need to have in retirement?” A good place to go is on a website like ours where you can go in and look at the retirement savings calculator. It’ll ask you, what is your current income? What is the assumed rate of return? How old are you? And when do you plan on retiring? And the good retirement savings calculators will spit out a number… will send you a number… and the retirement savings calculator will help you with that.

CHRISTOPHER PATTON: That sounds helpful.

OWAIZ DADABHOY: One final thing, I suppose, is look we said you had to be 25 to take advantage or 20 or whatever it happens to be, to take care of compounding returns and not put in as much money. But if you’re 50, not all is lost, because think back when you were 25, what your income was and what it is at 50. Hopefully it’s, you know, maybe two or three times more, which means that you can put in two or three times more money, so not all is lost. You just need to change the equation. Time is less, but the amount of money you can put in is more.

MONEM SALAM: I like to look at it as a barbell approach. Which is… right out of college, and maybe until you get married and have kids, you have a lot of discretionary income, and you can save a lot. Then you’re gonna have life things that happen. Your kids, their college, your marriage, everything is gonna happen. And then after they leave college, and you have maybe another 5-10 years of earnings potential, and that’s the other time you’re gonna have a lot of discretionary income and can save. So, if you can use that barbell but in the middle keep saving, you’re gonna go a long way.

OWAIZ DADABHOY: I think on that note, what I would recommend to people is once they sign up for a 401(k) at work, is you can choose to either put in a monthly amount of dollars. You can say I’m gonna put in $500 every month or $250 every payroll. What I’m gonna say is if you know that’s all you can put in is $500 a month, figure out what percentage of your income that is and make it a percentage instead. So, what happens is if you’re income goes from $40,000 to $70,000 and you’re putting in 10%, now you’re putting in $7,000 instead of $4,000, but you really didn’t know how that $7,000 was gonna feel. Or how that $3,000 extra was going to feel. So even when you’re going through these life’s expenses with the children that Monem was mentioning, you are still able to save. You have to save for yourself first, for your future self.

MONEM SALAM: Well thank you very much Owaiz for the podcast, really, I learned a lot as I’m sure Chris did as well. And we really appreciate your time that you spent with us today.

CHRISTOPHER PATTON: If you want to speak to Owaiz more about what you’ve heard him say or even invite him to speak, you can reach out to him how?

OWAIZ DADABHOY: So, you can email me at [email protected]. Or call into our office 800-SATURNA and ask for me. And I’ll be happy contact you back.

MONEM SALAM: Thank you very much Owaiz for joining us. If our listeners have more specific questions or information they need, have a lot of resources available at www.amanafunds.com. There are videos, there actually a brochure you can download and read all about it. So, there’s multiple opportunities for us to be able to start now rather than 20 years from now.

OWAIZ DADABHOY: Thank you both for having me.

CHRISTOPHER PATTON: Thanks for coming. Remember, not all 401(k) plans offer all the options we discussed, like loans or brokerage windows. There can be a big difference in terms of features. So, if you have a 401(k), talk to your plan administrator to learn about all of the options that are available to you.