It’s Never too Early or too Late to put a Savings Plan in Place
How to Retire with Confidence
By VINCENT PETRANGELO
When you envision your retirement future, what do you see? Some conjure an image of rest and relaxation, traveling the world, or spending more time with loved ones. For others, it could be volunteering or continuing to work at what you love.
But whatever your vision may be, it takes patience and planning — and viewing your retirement savings not as a lump sum, but as a monthly income stream — to smoothly transition into the next phase of your life.
What follows are some practical thoughts on how to achieve such a transition.
Because Americans are living longer, planning for a long, healthy, and active retirement takes on even greater importance. That means thinking very long-term, since you could be retired for 30 years or more. So as you’re thinking about retirement, you’ll need to understand what you want and need and how to save for those goals so that your money will last as long as you need it to.
When retirement rendezvous are keeping you and your loved ones busy, the last thing you’ll want to worry about is outliving your money.
A 2015 study conducted by the Employee Benefit Research Institute revealed that almost a quarter of soon-to-be retirees worry about doing just that. Only 22% of workers are “very confident” they’ll have enough money for a comfortable retirement, while 24% are “not at all confident.” Getting guidance and advice from a financial professional who understands retirement can go a long way to building up confidence in your financial future.
One of the best — and easiest — ways to begin saving is to take full advantage of any retirement plan matching contributions your employer may offer. While the specifics vary, many companies will match whatever you contribute to the retirement plan (up to a certain percentage of your income). Similar opportunities could be available to you through corporate profit-sharing plans, employee-stock-purchase plans (ESPPs), and employee-stock-ownership plans (ESOPs).
Even better? Automate those savings. Most financial institutions allow transfers from your checking or savings into your retirement account, allowing you to contribute before you see your take home pay. You’ll also be able to take advantage of the long-term benefits of dollar-cost averaging, which can reduce your risk of investing a large amount in a single investment at the wrong time.
By putting in even a small amount every month, you can make a huge difference in your retirement readiness down the road. For instance, contributing $100 every month to an investment that yields an annual interest rate of 6% translates into more than $46,000 saved over 20 years, and almost $197,000 over a 40-year career. And when you’re ready, you can work with a knowledgeable financial professional to establish a sustainable withdrawal strategy that allows you to tap into this source in a disciplined way over time, so you can create a steady stream of income when you’re no longer receiving a paycheck.
This is a hypothetical example for illustration purposes only and does not represent an actual investment. Investing involves risk, and you may incur a profit or loss regardless of strategy selected.
If you find yourself off track, consider these strategies to help accelerate your retirement readiness.
• Save More. Cut back anywhere you can and use that money to boost your contributions to your 401(k) and other retirement accounts. Maximize your contributions as soon as you can in order to take advantage of any employer match and to give the investments more time to potentially grow.
• Maximize Tax Efficiencies. Those 50 years of age or older have the opportunity to contribute a greater tax-free amount to their retirement accounts. For instance, this year’s 401(k), 403(b) and Profit Sharing Plan catch-up contributions can be up to $6,000. It pays to investigate all your options and take advantage of the ones that fit your specific situation.
• Retire Later. You may not like this option, but giving your investments more time to grow can lead to a bigger payoff in the long run. Working full-time may not always be an option, but by working longer you can delay drawing from your assets and can help maximize Social Security benefits if you wait to collect until full retirement age.
• Adjust Your Plan. Revisit your goals — particularly needs and wants — with a trusted financial advisor to ensure you can cover essential expenses throughout your life. Determining how much you need for the retirement you envision, what you need to get there, how to invest your money, how to account for inflation, what your healthcare costs are likely to be … these are matters your advisor understands and deals with daily. By following their professional advice, you may find your situation is brighter than you think.
Remember, there are a lot of moving parts here — projected investment returns, inflation, changes to tax and healthcare provisions, etc. — so there’s no such thing as ‘set it and forget it.’ It pays to get a little help. Bear in mind that a number of seemingly small changes can add up to meaningful numbers, especially when you add in the effect of compounding investment returns over a period of years.
The most important thing you can do to improve your retirement future is to start saving now. It’s never too early or too late. There are strategies that can help no matter what stage of life you’re in.
Balancing your financial reality with the lifestyle you want to create takes some finesse, but it’s worth the effort so you can create an income stream designed to cover your basic needs and wants when you’re no longer working full time. What you put in today and in the days to come will help you secure the retirement you’ve always envisioned — and enjoy it every step of the way.
Vincent Petrangelo is a wealth management specialist, carrying the AIF® Accredited Investment Fiduciary designation and a partner of deViller Petangelo Wealth Management of Raymond James in Springfield. He also serves as the local branch manager of the Raymond James office; (413) 372-6600.