Small Changes, Big Differences in your Retirement plan

The Power of 1% 

  How Small Changes Can Make Big Differences in your Retirement Plan

We have all heard that something – something 1% more, or something-something 1% better every day will have a massive effect on your life over the long run. How small changes can make big differences. It makes sense, if you could mathematically make yourself 1% better or more each day, you will be significantly better than you were at the beginning of the month or beginning of the year. It is a worthy pursuit. But it is very hard to calculate unless you are talking about running miles or lifting weights.

The concept is that a small change over a long period of time will have a massive impact on you and your life if done for a long time. This can be applied to so many things. Even an aircraft that is 1 degree off will land in a very different location than what was scheduled. But today I want to apply it to your financial life. Specifically, your 401k or retirement plan.

The “Power of 1%” is a motivational abstraction, why would I want this idea applied to a boring, old 401k plan? Because just 1% could make a massive difference in your life. These small changes can make big differences in your retirement plan. This one concept could make your retirement and life unimaginably better, and totally change the way you grow your wealth. Just 1% can be the difference between barely scraping by, to being a comfortable millionaire.


Power of 1%


The true key is to simply increase your 401k contribution by 1% at the beginning of the year, each year.


Let’s talk about how.


You have a 401k retirement plan and let’s say you are saving a decent amount of your money at 5% of your income, and your employer is either matching your contribution or putting in a percentage of your salary, depending on where you work.

Let’s take three pilots for this example, each in different stages in their career. 1. Rookie 2. Senior FO 3. Fully Tenured Captain that was flying bi-planes back in the day (joking). Pay will remain the same for easy math.

The Rookie makes $100,000 per year and is deferring 3% of his salary each year. In 5 years he would have put away $15,000 into his 401k. 3% seems like a lot, but over 5 years, that is only $15,000 for his retirement. Now let us see what would happen if he increases his deferral by just 1% each year. If he starts at 3% and increases each year by 1%, he will be at 7% (Year 1 was 3%) and over that time he would have contributed a total of $25,000! That is an extra $10,000 or 67% more than what he was normally doing.

Small Changes Big Differences in your Retirement plan

The Senior FO makes $250,000 per year and is deferring 5% into his 401k each year. When he retires in 10 years, he would have contributed $125,000 into his 401k. Not bad! But if he plans to retire, he should definitely do more. If he increased his contribution just 1% each year for 10 years, He would add $216,500 over his time, almost twice as much if he stuck with the 5% rate. Remember, you can only max out your side of the 401k contributions up to $19,500 each year, plus another $6,500 if you’re 50 or more, which is the case here. But you can always take that money and put it somewhere else. (Hint, hint Backdoor Roth Conversions) Here is the example:

Small Changes Big Differences in your Retirement plan

The last person is a Captain that will be retiring in 3 years. He has 3 years to put away as much money as possible. His salary is $350,000. He will need to put away 8% of his salary in order to meet his max of $26,000. Since he doesn’t have a lot of time to scale up every percent, he should just try to contribute as much as possible before he retires. If he maxes out, he will have $78,000 over 3 years! The more you can contribute to your 401k the better life will be.


The Tale of Two Pilots


Now let’s look at another example of how small changes can mean big differences in your retirement plan.

David and Susan both went to Metro State University to be pilots. They both were very good students, graduated from school, both worked for a regional liner and they just started flying for the same major airline. David loves to snowboard, vacation around the world, and party. He says  “As long as I’m covering my financial bases, I can do the things I enjoy.”

Susan loves to ski, read books, and spend time with her family. Living a comfortable life is important for her and she wants to make sure she can do the things she enjoys in the future. 

On their first day, they sit down with HR, and they are asked how much they want to start deferring in their retirement plan. David, whose friend told him to defer as much as he can, announces he will start with 5% of his $150,000 salary going to his 401k. When Susan sits down with HR, she says she can’t defer any dollars into her 401k because she wants to finish paying her student loans first. But she promises next year she will start with 1% of her $150,000. And the next year, 2% and so on. 

At Year 10, they both start getting paid $250,000. And at Year 20, they are making $300,000.

25 years later, after they both have amazing and fulfilling careers, they bump into each other at the DIA breakroom! “Wow!” They say for they haven’t seen each other for a long time. After a while of catching up, they talk about their retirement accounts. 

David smiles and boasts “I’ve been saving 5% of my salary since the first day I got here, and now I have saved $282,500 of my salary” as he calculates in his Excel spreadsheet:

“Very impressive!” Says Susan, as she tabulates how much she has saved. She started saving with nothing, but she promised she would increase her contribution by just 1% each year. After she does some math, she shows David how much she has saved. Smug David leans forward and stares, mouth open, at the numbers from Susan’s tablet…

“You saved $439,500?! Wow! I thought you said you were doing none, how did you beat me? That’s almost twice as much as I’ve saved, and I’ve been doing 5% my entire career!”

“Slow and steady wins the race” Susan smiled. 

Just a small change can make a huge difference in your retirement plan. And just because you start off slow doesn’t mean you’re out. Don’t get discouraged, just try to be 1% better. Like Susan!


What’s Next?


If you are just starting out or in your mid-career, increasing your retirement plan contributions by just 1% this year will have a huge impact on your retirement accounts and life. This doesn’t even factor in the potential increased growth that your account could receive. Lastly, your salary regularly increases with inflation, usually around 2% to 3% each year. If you just took 1% from that, you would hardly notice the change in your cash flow. 

This strategy is something relatively new but is gaining more traction among plan sponsors and large companies. Many of them are automatically enrolling employees into automatically increasing their deferral, or at least strongly encouraging that their employees increase their 401k contribution each year. Hopefully, these examples have made it clear the importance of growth for your retirement. 

Do you have a financial plan? Please reach out for a complimentary discovery meeting with our CERTIFIED FINANCIAL PLANNERS™ to help give you a clear path to a successful story. Susan would 🙂

Credit Card Rewards

Let’s talk about credit card rewards. But first, let’s talk about mindset.  It takes a different mindset to make money verse saving money.  Making money is all about adding value to others while saving money is about making your dollar go further and often delaying instant gratification.  The trick to savings is getting to a point where it is automatic. Making the dollar go further, however, is about being creative and using the various tools at your disposal. One of them being credit cards. Credit cards can be one of your best resources for helping your money go further.  To that point, I live off my credit cards and try to put absolutely every purchase I make on them.


Credit Card Rewards


Credit cards are fantastic because of the rewards they give back.  Every dollar you would spend anyway can go towards enhancing your lifestyle. It could be points for a hotel stay, free flights, cashback, or much more. What is great about these rewards is that they do not cost you anything extra if you use your credit card correctly.

So here is how I use my credit cards and how I suggest others do the same.

First things first, if you buy anything on a credit card you must be able to pay it off immediately.  This is by far the most important part of all of this. This isn’t new advice, but it is solid advice. If you cannot pay off the monthly balance every month then this strategy is not for you and you should stick to a debit card or cash.  (Although, credit cards are a much easier way to track spending than using cash).

What I do is set up the payment to come out automatically every month and pay the statement balance in full. Yes, all of it. Every last penny.  This makes it really easy not to forget to take care of it at the end of the month.

Any bills that will allow me to pay with a credit card I will set it up to pay them automatically with the card.  Utility bills, gym memberships, home remodeling projects, business expenses, I even go as far as doing my charitable giving with my credit card when it allows.

The surprising thing is that the more available credit you have and do not use helps improve your credit score.  Some experts believe you should only use 30% of your available credit.  But honestly the more available credit you have the better, so do not hesitate to call your credit card company once or twice a year to ask for a limit increase. Remember, credit card companies compete ferociously with each other, this can really benefit you.

Also, be sure to watch out for companies charging you a processing fee for using a credit card. This is usually a case-by-case basis, but you need to make sure the points or rewards you are getting are worth any extra fees.  For example, the DMV wanted to charge me 3.25% for using a credit card, but I would have only received 2% cashback… in this case, I wrote a check.


Picking the best Credit Card Rewards


Today it seems like there is an unlimited number of types of credit cards you can get and each one has different rewards and benefits.  Some are for travel, some are cashback, and some are store-specific rewards. It can be confusing. Luckily, Money did a nice article about which cards are best in a variety of categories, check it out here: The Best Credit Cards of 2020.

Picking a card can be tricky and you need to think about how you spend your money to pick the best one.  I personally like to use the rewards for travel.  Well, when we can travel. (Thanks COVID) It is such a great feeling to stay at 5 Star hotel and not pay for it or get a night in the mountains during peak season ski sea for free.

It is also fun to fly for free.  My family and I usually get a least one free vacation a year.  Currently, I am stockpiling my points until some of the travel bans are lifted but plans are in the works.  Ask yourself how you spend money.  I have had clients use their points for new gear at REI, grocery runs at Costco or even Disney World tickets.  Which is going to add the most value to your life.  Keep it simple though, pick 2-3 and stick with it. Too many credit cards can get difficult to manage.

It really is about getting more for your dollar.  Because you pay off the balance each month, you do not incur interest charges or extra expenses. When I buy things on a credit card I am not spending more or buying things I would not normally buy.  These rewards allow me to save more money and still get the lifestyle I want.  It is like the best life hack.  Having the right credit cards can help you live a richer life!


Squeeze more out of your credit cards


Points and rewards are an obvious no-brainer. However, there are also some other advantages of paying with a credit card that are often overlooked. Some can give you longer warranties and insurance on your purchases. Many have great purchase protection options, far better than any debit card.  Some can provide trip cancellation insurance and/or car rental insurance. Plus, if you are lucky concierge services. Many services can help you plan your next trip, arrange for concert tickets, or even land a sought-after restaurant reservation. Think of it as your own personal assistant.

The list is long for the benefits of using credit cards to buy your everyday items and I only scratched the surface of how to maximize them.  Credit cards can be a wonderful tool but use them correctly and responsibly.  With great power comes great responsibility, or something like that! Now go forth and get those rewards.

United Airline Layoffs. What to do if you are laid off.

United Airline Layoffs


Economic downturns often hit the airline industry harder than most. Once again, the airline industry has been grounded by the pandemic and the corresponding economic conditions. As such, layoffs are looming.  United Airlines announced it will be laying off thousands of employees, estimated to be 36,000 by October 1, 2020. Additionally, United Airlines said the jobs of more than 14,000 employees are at risk when federal aid expires in the spring of 2021. These layoffs could affect everyone from customer service employees, flight attendants, to pilots. Many other airliners may follow suit.

The fallout from 9/11 and the impact of the 2008 Financial Crisis took the airline industry roughly 2-3 years to recover. It is hard to say how long the coronavirus impact will last or how it will all turn out.

If you are worried you might be one of the airline employees to be laid off or already have been, there are many concerns you may have.  From how to pay bills, to how long will this last, to how to keep medical insurance and benefits… the list goes on.


What should I do if I am laid off?


We have put together some tips, ideas, and strategies to help you get through this tough situation. 


Covering your living expenses


Being able to cover your living is by far the most important question and concern.  There are a number of strategies to help navigate this and there are also some new provisions from the CARES ACT that can help if you are a United Airline employee who has had to face the layoffs. 


Your emergency fund


An emergency fund is a savings account or separate account that is set aside for when the unexpected happens, like being laid off.  We recommend that our clients have 3-6 months of their monthly expenses saved in this kind of account. The goal is to use this money to pay for your mortgage, food, etc.  It is designed to help you bridge the gap of unemployment to your next job or getting rehired when things recover.  

One often-overlooked task is once you are employed again to refill your emergency fund. This account can help you in a tough situation but be sure to replenish it to ensure it is there for the next time something unexpected comes up. 

If you do not have an emergency fund in place, read on for some other ideas that can help. 


Claiming unemployment


If you received a WARN, it is important to start planning ahead now. You can now qualify for weekly unemployment payments from the state in which you worked.  Many people fly out of a hub that is different from the state that they live in. When applying for unemployment, use the state that you work out of. Selecting reason for unemployment: “Coronavirus” can streamline the paperwork process. A quick Google search of your state and unemployment will land you on the right page. Look for “.gov” in the address. The CARES Act is adding $600 per week into unemployment checks but is set to end on July 31st. This may be extended as the impact of the virus continues. 


Mortgage Forbearance


Mortgage Forbearance means you can postpone your mortgage payment temporarily. For 180 days you can request a forbearance from your mortgage lender. If granted it means you will not have to pay your mortgage for about 6 months.  However, this is not mortgage forgiveness. You still owe the full amount and interest still accrues on the months you do not pay.  You will need to work out the details and repayment plan with your lender as each situation is different.  Per the CARES Act, no additional fees or penalties will be applied if you require forbearance.


Retirement Account Withdrawals


Taking a distribution or withdrawal from your 401(k) should be a last resort. The money in your 401(k) is meant for your retirement. However, with the intensity and impact of the United Airline layoffs caused by COVID-19, the CARES Act has set up many relief options.

Traditionally, you could not access your retirement account before the age of 59 1/2 without having to pay a 10% penalty and income tax.  The CARES Act has waived this 10% penalty.  Since all retirement accounts (Roths excluded) are funded with pre-tax dollars and the income tax is normally due in the year of a distribution. 

The CARES act has allowed distribution in 2020 up to $100,000 be taken out and the taxes are due over the next 3 years. For example, if you take out $90,000 from your retirement account, you will have to pay tax on $30,000 in 2020, $30,000 in 2021, and $30,000 in 2022. That is much better than having to pay all $90,000 in 2020. The money will come out of your account’s investments pro-rata, so if you have half your money in large-cap stocks and half in small-cap stocks, the money will be sold in them equally to fund the distribution.

Reach out to your 401(k) provider Charles Schwab or Fidelity for details.


401(k) Loan


Taking a loan from your 401(k) is not a good idea because you will be taxed on the distribution, and you will have to repay the loan. There could potentially be many more downsides to taking a loan rather than just distributing the money.  If you are furloughed or leave the plan, you will be subjected to a faster repayment schedule.

If you take out a loan, you will be taxed on the loan amount, plus you will have to use after-tax dollars to pay back the loan. In the grand scheme of things, once you repay the 401(k) loan, you will still be subjected to income tax when you take the money out when you retire. So you will be taxed TWICE on the money, instead of just at the distribution.


Miscellaneous Items


Many car manufacturers are offering payment deferrals during this time. If you are unable to make payments comfortably on your car, be sure to reach out to your car’s manufacturer finance department to discuss payment options. Many newer cars (2018 or newer) will have more generous payment options than older vehicles.

Also, a voluntary separation could be a good idea if you are close to retirement. The benefits of the United Airlines Retirement Health Account (RHA) can help you pay for medical insurance. 


What about my  Benefits if I am laid off??


United Airline layoffs are hard enough, luckily you can retain certain benefits. For instance, health insurance, RHA, and you’re retirement accounts can still provide you benefits.


Health Insurance


COBRA is a government bill that lets you keep your medical insurance with your company for up to 3 years. You will have the same coverage and plan, except you will have to pay 100% of the premium (plus a 2% premium for administration costs for a total of 102%) Look at your most recent pay stub to see how much you and your employer were paying for medical insurance.


Retirement Health Account


Your Retirement Health Account (RHA) is a unique account granted directly to United from a private letter ruling with the IRS. The RHA is used to pay for out-of-pocket medical expenses and health insurance premiums when retired, furloughed, or separated from service. The RHA can also be used to pay for your COBRA premiums. Click here for more details on how to use your RHA.


401(k) and Retirement Investments


There are some options you can choose to do with your 401(k) when you have faced a layoff.

  1. You can keep it with the company.  Nothing will change as you will have the same investment options and access.
  2. You can withdraw the money, as we mentioned above.  However, this is not the best action to take if it can be avoided.
  3. You can roll your money into an IRA.  There are no taxes on this move, and it can give you more investment options and control of your money.

Our preference is to roll your 401(k) over into an IRA so that you have better access to your account while avoiding the administration and investment fees from United, Fidelity, or Charles Schwab. We can build you a custom portfolio based on your needs and our custom investment research for a fee typically lower than your Fidelity and Charles Schwab 401(k) options.

Our expertise is working with pilots and aircrew in providing them the best investments through our relationship with Charles Schwab. Leveraging our partnership with Charles Schwab we can build you a custom portfolio in your PCRA.


What’s Next?


We can help you navigate one of the most difficult times the airline industry has ever faced, and that is really saying a lot! We work with many pilots, crew members, and their families and help them prepare for a successful retirement and reach their financial and life goals.

Bonfire Financial is a fiduciary, fee-only,  financial advisor.  We have a staff of Certified Financial Planners™ that specialize in helping United Airline Employees and Pilots.

As a United Airline or major airline employee, we would like to offer you a free consultation to help answer any questions you may have and help you get a game plan in place. Scheduled your call now. 

Schedule a Call

Money Savings Secrets: Amazon Prime



Do you love saving money? Do you love Amazon? If you are anything like 50% of the U.S. population, we are guessing you do! A recent statistic showed that nearly half of U.S. households are Amazon Prime subscribers. While the free two-day shipping may be enough for many to sign up, Prime offers a ton of other money saving benefits (many of which you may not know about). So we have rounded up our top money saving secrets for Amazon Prime. We hope you and your wallet enjoy!


1. Save on Groceries:


All Prime members already get special in-store deals at Whole Foods, but they also now receive an extra 10% on sale items. Make sure you have the Whole Foods app downloaded and linked to your Amazon account for checkout.


2. Get free Books:


If your library card gets more of a workout than your ATM you will love this one. Prime members can download a free digital book every month, plus you can also borrow a book each month from Kindle Owner’s Lending Library. This perk is priceless, especially when it can be used to get these books.


3. Free Photo Storage:


This is one of our favorites! Prime Photos gives you unlimited photo storage- yes..unlimited! This is a great way to organize, store and share photos,  plus you can ditch any other service you have been paying for.


4. Earn Shopping Credits:


So you don’t really need your order in two days? Even better…select No-Rush Shipping and get discounts and rewards for future orders.


5. Free Music Streaming:


Prime members also get Prime Music which includes over 2 million songs. Create your own playlist and take your music with you- your membership gets your music on up to 10 devices.


6. Watch Free Movies and TV:


Prime Video is more commonly known but certainly still worth mentioning. You literally get thousands of free TV shows and movies, so ditch the Redbox and start saving. Plus their original shows are great (I mean, have you ever seen Jack Ryan?!) You’re welcome.


7. Free Magazines:


Travel + Leisure, Wired, Money, Good Housekeeping, and more…all free with your membership! These digital magazines are available through the Kindle app on any smartphone, tablet or computer.


8. Free Samples:


Amazon has a sample site that is a lot better than a cart battle at Costco. Some are free, some are not, but even if you pay for a sample you will get a credit towards a future purchase.


9. Get Exclusive Deals:


As a Prime Member, you get special deals and discounts. 25% off dog food, 50% off sunscreen- you name it- make sure to browse through member deals as they change often.


10. Get 2% Rewards with Amazon Reload:


Amazon Reload offers a 2% reward every time you reload your Gift Card balance.


Who knew Prime had so many perks?!

The question, however,  still remains- is the $119 per year worth it? Analysts recently scrutinized all the perks that Prime membership now offers, and estimated that it is worth $785 annually. We’d say that’s a deal!

Have you used any of these Amazon Prime Money Savings Secrets? Any we forgot? Not yet a Prime Member- not to worry, you can sign up here.


Spread the love- Be sure to share this post!


Amazon Prime Money Saving Tips

Please note this post includes affiliate ad links -As an Amazon Associate, we earn from qualifying purchases.

Thank You For Your Subscription

You’re in! Thanks for subscribing to our monthly newsletter. We will be sending you market updates, financial insights and inspiring travel ideas soon but in the meantime check out our blog, join us on Instagram or pop over to Pinterest.

Your Appointment Request has been Received

Thank you for reaching out! We are excited to learn more about you. Someone from our team will be in touch shortly.

Sign up now

Join us around the fire for monthly market updates, financial insights and inspiring travel ideas.


Sign up now

Receive tips

Give us a call

(719) 394.3900
(844) 295.0069