If it feels like everyone suddenly has an opinion about money, you're not imagining it.
Between TikTok, Instagram, podcasts, and conversations with friends over last Saturday’s 4th of July barbecue, financial advice is everywhere. TikTok is begging everyone to open a Roth IRA. Someone warns that Social Security will be out of money by the time you retire. Deals and hacks for interest rates and free cashpromise optimization, but in the end, all those bank accounts and all that free “advice” are just a recipe for overwhelm.
In this edition of Behind the Curtain, we are taking you through our Aptus planners’ conversation on what we are hearing from friends and clients, ourselves, and we explore the truths and the lies in all of it.
“Everyone Needs a Roth IRA”
We love Roth IRAs! But that doesn’t mean you need to follow the financial social mediatrend that insists all people shouldbe maxing out a Roth IRA.
A Roth IRA is an individual retirement account funded with after-tax dollars. Since you've already paid taxes on the money you contribute, qualified withdrawals in retirement are tax-free.
A Traditional IRA works differently. Contributions may be tax-deductible today, but you'll pay taxes when you withdraw the money in retirement.
So which one is better?
The answer is: it depends.
While Roth IRAs can be incredibly valuable, they aren't automatically the right choice for everyone. Roth accounts have income limits, and depending on your current tax bracket versus your expected tax bracket in retirement, paying taxes now may not be the most tax-efficient strategy.
Why would you open a Roth IRA when you can use your Roth 401(k) at work for the same tax advantage but free money via a match and much easier account setup and investing?
Those above the income limits for direct contributions to Roth IRAs may want to “max out” their work retirement plans, perhaps with pre-tax contributions, while also making “backdoor” Roth IRA contributions, which include a nondeductible traditional IRA contribution followed by a conversion to a Roth IRA.
Aptus planners want to remind you that it’s important tochoose the account that makes the most sense for your situation. Each person’s journey will be different. That’s why we recommend speaking to your financial planner to evaluate Roth versus pre-tax and work versus IRA accounts.
“Social Security Won’t Be There When I Retire”
This is one of the most common headlines we see—and one of the most misunderstood.
Is Social Security disappearing? No.
Could changes happen in the future? Possibly.
Current projections suggest that if no legislative changes are made, future benefits could be reduced. That doesn't mean the program is vanishing - it means it could push out or reduce benefits. The likelihood of payments being eliminated if the Social Security trust fund runs out of money? Next to zero.
Another misconception we hear is that you have to work until you begin taking Social Security.
Nope. You can retire any time you want, and that has nothing to do with when you take Social Security.
Finally, there is SO MUCH advice to take Social Security early! Why oh why? Waiting to claim your benefit can significantly increase your monthly payment!Every year you delay claiming Social Security before age 70 increases the benefitby approximately 8%.
When should YOU take Social Security? Instead of answering that question in isolation, we think you would make a far more informed decision in the context of financial planning.
"Just Put Everything into The Market. It Only Goes Up!”
Investing in taxable accounts has become another popular recommendation online.
They're flexible investment accounts that don't have contribution limits or early withdrawal penalties, making them useful for goals outside of retirement.
But they're not a replacement for an emergency fund.
Investments can, and do, go down. If all of your money is invested and you suddenly need cash during a market downturn, you may be forced to sell investments at an unfortunate time.
That's why we recommend building a healthy cash reserve before investing moneyyou'll need in the near future.
And the dividend investing – oh, the dividends! We are hearing a lot of buzz on “passive investments” that can spin off income. Folks, please do not enter a suboptimal investment strategy just because it can spin off income. Dividend stocks tend to lose less in bear markets but don’t have as much upside during bull markets. They have significantly underperformed in the last 15 years, for instance. You might choose dividend stocks because that’s your thing, but don’t do it for the income. If you need money (income), then you just sell the stocks.
We recommend reinvesting dividends in your mutual funds to compound your growth.
"I Need Five Different Bank Accounts"
We've noticed another trend among newer clients: collecting bank checking and savings accounts.
Sometimes it's to earn promotional bonuses. Other times, it's an attempt to organize money into separate bucketsacross different banks.
While having dedicated savings goals can absolutely be helpful (like through an Ally account), managing multiple checking accounts across several banks often creates unnecessary complexity.
Instead, consider simplifying.
Many online savings accounts allow you to create separate savings buckets for different goals without opening entirely new accounts. And if you're married or combining household finances, a joint checking account for shared expenses can often make day-to-day money management much easier.
Aptus CEO, SC Gutierrez, is currently fangirling her new Elevault account through Southern Bancorp. This app is one account in which the customer can create multiple savings “vaults” for different savings goals. They are easy to open, close, and transfer. She likes that it’s not connected to her bank checking account, making it a little harder to raid. Plus, it is currently paying 4.35% interest.
The Bottom Line
Social media has made financial education more accessible than ever,and it unleashed its army of financial gurus on unsuspecting 4th of July party goers just trying to enjoy hot dogs and fireworks in peace. From our perspective, that’s not such a bad thing. We SHOULD be talking about money, trading tips on saving, and sound financial decisions.It’s a nice respite from the old days of one-upping on cars and home purchases. Many creators are helping people become more engaged with their money, so we can say “cheers” to that.
Remember: a viral financial tip,no matter how emphatic the deliverer or number of shares by devotees, is an isolated tip out of context. It could be the exact opposite right thing for you. Stick to your financial plan and don’t worry about the hype.
But...It’s hard to stick to a plan you don’t have. So,what’s the only universal financial advice that we are giving at Aptus? Go get your financial planning started. Now. Who knows what money moves you might be missing that are actually right for YOU!
Have you seen a money trend you'd like us to fact-check? Let us know at info@aptusfinancial.com, and we may feature it in a future edition of Behind the Curtain.