Fully Integrated to America? Now Change Your Mindset

One of the greatest struggles of new immigrants to America is to get integrated into their new society. By far, the most important aspect of this is to get your legal status in place. The process can be long, curvy, and filled with cliff-hangers. The process and duration can be different for each individual depending on your country of origin or your career status when you started. Your American colleagues or friends who never experienced this, have little to no knowledge of how this process works and how painstaking it can be. While you are doing this, you are also concurrently blending into the different cultures of your new home: their foods, weather patterns, slangs and accents, social expectations, nightlife, national holidays,  religious worship, tax system etc.

Image result for welcome

By the time you check this box (often by obtaining a permanent resident card or getting your citizenship), you have already been in the country for a while. If you’re like most immigrants, your mind was probably laser-focused on this singular goal that you push a lot of other stuff to the back burner. And this is for a good reason because you do not get to enjoy some of the benefits of your new country until you permanently legalize your status. For example, when I was shopping for term life insurance, most insurance companies refused to give me a quote because I was still on a work visa (*your country of origin may also affect this*). I was only able to get my life insurance in place after I had secured my permanent residence (Green card). Also, you cannot vote or be voted for unless you are a citizen.

But once this stage is behind you, it feels like you can see light at the end of the tunnel. You begin to understand how things work. You start to map your vision board for your future life.

Image result for vision board

How Did We Think About Retirement Back Home?

I grew up in Nigeria, so my writing will reflect my experiences from that background. But I imagine these will be similar to most immigrants, especially those from Sub-Saharan Africa. Back home, the system was a little different. We grew up seeing our parents work very hard at their jobs all their lives, often for the state or federal governments, then when they retire in their late 60’s or 70’s, they depend on gratuities and pensions from the government for the rest of their lives. More often than not, this is a financial disaster as they get owed frequently and a lot retirees, who have not saved enough for themselves (majority of them), often die in penury if they don’t have successful children to help lift their financial burdens. There is a constant squabble with government agencies about paying their monthly pensions. It’s a broken system and it is the retirement playbook most people live by.

During their active working years, most middle-class and upper middle class people back home try to lift up their family members by helping to solve their sundry financial problems. Trevor Noah in his book, “Born a Crime” calls it the black tax. The result is that most adults work their butts off and by the time retirement comes, they are at the mercy of the government pension schemes, often, a complete failure to these retirees. Parents strive to educate their children as a way to prepare a good life for them. In a sense, this also makes these children the retirement plan for most parents. A successful child takes care of his own family and his own parents in old age, financially and otherwise. It’s like a sandwiched generation. This cycle is repeated with the new generation. Rinse and repeat. The system seems to work on the surface, but it belies the great burden, stress and heavy toll it takes on the worker.

Culture Shock

Now coming to America, you have no idea how things work. I suffered this fate to my own detriment. By the time I understood that I’ll have to shoulder this responsibility of saving for my own retirement, I was already several years behind the ball. The list of financial jargons that I had to learn did not help matters. With my first real job after my medical training, when I was asked if I wanted a percentage of my income deducted towards a 401K contribution, it sounded as if they were speaking Latin to me. I told the HR people nobody should mess with my money. I wanted every single cent of it! If I worked hard for it, I needed all of it. I wanted to enjoy every bit of the money I earned. After all, YOLO!

Now, technically, there are some workers in America that still have the benefit of being provided with pensions by their employers (called defined benefit plans, where the employer basically puts aside some money for your retirement with or without your own contribution). But they’re in the minority. Rather most employers offer defined contribution plans (like the 401k, 403b, 457b plans etc.) where the employee is required to put in a contribution towards the plan and the employer may match a portion of it. There’s also social security benefits. To qualify for social security benefits, typically you must have acquired 40 points. If you work a full year and paid your social security taxes (which is 6.2% of your gross income), you will get 4 points, so to qualify for social security, you must have worked for about 10 years.

To receive your full social security benefits, you must have reached a full retirement age (age 67 for almost all those born after 1960). You can start drawing from your social security at age 62 but there is a great reduction in the benefit amount if you do that. Regardless, the social security benefits is very paltry and will not guarantee a secure retirement for most, especially if you have labored for decades in the work force. The average social security check as of June 2018 was $1,413.37 per month. Most retirees would not be able to live well on that after paying their bills and mortgage payments. What’s worse is that the Social Security Administration has been warning of the possibility of running out of funds in the near future. While this may be exaggerated, it is possible benefits in the future may be cut for some retirees, and/or the full retirement age may be extended, like it was recently proposed in Russia by Putin

Now Change Your Mindset

So now, you have to create a mindset shift where you see yourself as the major leg of the tripod of retirement savings. That tripod is

1. Defined Benefit Plans (Traditional Pensions): Almost non-existent for most workers

2. Social Security Benefits (Not reliable, shaky future)

3. Defined Contribution Plans (401ks, 403bs, 457bs, 401a: these numbers are just codes in the IRS that describe the specific defined contribution plan). In these plans, you save money pre-tax (and some employers can match a portion of the amount you save) and the money grows tax deferred, but it will be taxed in retirement when you withdraw them. It can be withdrawn without penalties after age 59 1/2. For 2018, the maximum you can put in a 401k or similar plan is $18,500 and this will likely go up to $19,000 for 2019 to adjust for inflation (IRS makes these changes).

Technically there is a 4th leg

4. Traditional IRA/Roth IRA (IRA means Individual Retirement Account). In Traditional IRA, you put pre-tax money and it grows tax-deferred but like in the 401k, you will pay taxes when you withdraw it. In Roth IRA (named after the Delaware Republican senator responsible for sponsoring legislation creating this plan, William Roth) you put in money post-tax (after your money has been taxed) and it also grows tax deferred and you can withdraw it tax free. The maximum to put in a Traditional/Regular IRA or Roth IRA for 2018 is $5,500. For 2019, that amount will likely go up to $6,000 to account for inflation.

Both the 3rd and 4th leg of retirement savings depend wholly on you and forms the main thrust of your retirement savings. You don’t have to be overwhelmed by all this. The jargons and the terminologies can scare any newbie (I will work on an upcoming blog post to define and explain some common financial terms and lexicon). But keep things simple. You can start by educating yourself of the basics. You can start by trying to understand some of the terminologies. You don’t even have to spend money to educate yourself. The world of the internet is filled with so much great content. You can subscribe to a personal finance blog, or some financial website. You can go to your local library to borrow books to read. A good primer would be Eric Tyson’s Personal Finance For Dummies. Don’t like to read? No problem. Listen to a financial podcast on your commute. You can start with basic personal finance podcasts like Dave Ramsey. Find him too acerbic, religious and proud for your taste? No worries then, listen to Clark Howard

You don’t have to become a personal finance nerd to do this stuff but you have to bother. Three areas of your life that you cannot delegate are: your health, your relationships and your finances. You may get help in these areas, but you have to take ownership, otherwise, you may not like the results. You just have to learn to be accountable to yourself.

You can review these 5 Quick Ways To Organize Your Financial Life and take action. Ideally, when you have organized your finances well, most of it will be on auto-pilot. When you change your mindset to start thinking about saving for your retirement nest egg, it is a marathon and not a sprint. Avoid Get-Rich-Quick schemes (and there are so many of these in abundance in America: Bitcoins, I’m looking at you!). In the game of building wealth, it pays to be the turtle and not the hare (pro-tip: the turtle always wins the race). But you have to develop the habit of saving early and often, with every paycheck, if possible. The funny thing is that after you are out of consumer debt, and start saving for retirement, you are building wealth, one dollar at a time. After you hit a critical mass, you will begin to experience the magic of compound interest. While the average American has to think about himself for the most part in retirement, the immigrant has to think of his immediate family, and often his extended family back home. The black tax remains alive and well. This is even all the more reason why the immigrant needs to learn the tools to build wealth in this country, so he can have enough to enjoy his retirement, as well as to help lift up the fortunes of his family back home. 

Depending on your income level, you can start off your retirement savings/wealth building with these simple steps:

1. Contribute to your work-place 401k (or its equivalent) up to the company match

2. Open a Roth IRA (this is preferable to the Regular/Traditional IRA) and max it out if you can

3. Now go back and completely max out your 401k plan, if you can

4. Then, if you still have extra cash to spare, open a taxable investment account with a reputable investment company like Vanguard, Fidelity, T-Rowe Price, Schwab or a discount brokerage firm like E-Trade or TD Ameritrade. There is no limit to how much you can put away in a taxable account. However, you will have to pay taxes on the dividends and capital gains the account generates every year when you file your taxes.

5. For those who have the appetite, you can consider commercial real estate investing at this stage

For stages 1-4, these accounts are just like baskets. You now have to select investments to put in them. For simplicity, it’s best to stick with mutual funds or ETFs (Exchange-Traded Funds). These are well diversified groups of stocks or bonds. Research has shown that stocks and real estate  are two of the best ways to build wealth (besides owning a lucrative business). If you stick to just these two, you will come out very successful. In investing, as with almost everything in life, keeping things simple is always preferable. One of my investing mentors, Taylor Larimore calls it “The Majesty of Simplicity”.

Now, a lot of immigrants are well educated and are often in the field of IT and Health/Medicine. Some are small business owners or independent contractors, virtually working for themselves. For these kind of people, they may do well to consider starting a small business retirement plan like the Solo 401k (also called the Individual 401k), or a SEP-IRA. These plans can help them potentially save up to a maximum of $55,000 (for 2018) pre-tax towards their retirement. In America, it pays to own your own business or work for yourself.

In a separate blog post, I will talk about the mechanics of investing. But the above should give you some insight to get you started in this process. It might stimulate you to do a little more digging about your own financial situation.

What do you think? How did you learn about finances after moving to America? How do you keep yourself educated about your financial life? Comment below

Like what you read on this blog? Then please click the icon on the lower right corner of your screen to follow my blog so you can get every post delivered directly to your email box. Thank you!

4 thoughts on “Fully Integrated to America? Now Change Your Mindset

  1. Great post! Definitely gives the basics. I find real estate interesting but definitely involves more work than index funds where you can set and forget! Maybe one day you can write on real estate investing including crownfunding!
    Keep up the good work!!!

  2. Yes. Real estate is a legitimate way to build wealth. Not everyone has the appetite for it though. And it involves a lot more work. I like the laziness of Index funds investing….

Leave a Reply