Getting A Late Start To Saving Doesn’t Have To Be Scary

October 31, 2017

“Mommy, was there electricity when you were born?” 

This was the very serious question asked by my 8 year-old a few days ago. After explaining to her that yes, I was born after electricity and after dinosaurs became extinct, she seemed happy with the answer and skipped off.

But her question had me thinking about retirement — something about having a 4 in front of your age plus your kid thinking you were born prior to electricity gets you thinking about that. Then as I relayed the story to my friends, they started talking about their own fears of retirement, most of them centered around not starting early enough.

I guess that’s the great part about being in your 40’s — you are old enough to learn and recover from past mistakes, yet young enough to still have time to build a nest age. I reminded my friends of this fact.

There’s actually a lot you can still do in 10-20 years that can prepare you for a reasonable retirement:

  1. Strategize paying off debt: The smaller your expenses, the further your money will go in retirement, so work now to get all debts paid by the time you retire. For example, use a mortgage payoff calculator to estimate how much extra you would need to pay each month in order for your mortgage to be paid by retirement. Also, use the Debt Calculator to estimate when you will get out of debt and also to come up with a debt repayment strategy. With tax season right around the corner, this could be a great use of a future tax refund.
  2. Max out your retirement plan: Face the music and run a  Retirement Estimator to see how much of your income you may be able to replace when you retire. Ideally, you want to be able to replace at least 70-80%. If you got a late start saving for retirement, consider upgrading your retirement savings as opposed to upgrading your car or your home. Make maxing out your retirement plan a goal. For 2017, the maximum you can put into your employer retirement plan is $18,000, and it goes up to $18,500 for 2018. If this seems impossible, at least start with the employer 401k match and use features such as auto escalation to automatically increase your contributions until you hit the limit. If you get annual pay increases, consider increasing your contributions in the month you receive a pay increase — you can even have ½ the pay increase go to your retirement plan and keep the other half to spend today.
  3. Get your investments working hard to help you retire: A friend of mine used to always say that he worked too hard for his money to have it sitting around in a 401k plan doing nothing. Consider using tools like CNN Money’s Asset Analyzer to find the best investment mix for you. If you’re still unsure or want a simpler option, consider using a Target Date Fund.
  4. Keep your priorities straight when it comes to your kids’ college: The kindest thing you can do for your children’s future is to prioritize your retirement above paying for their college education. Think of it this way: what is more loving — to help your kids find a cost-effective way to get a college degree or for you and your spouse to spend 20+ years of your retirement sleeping on your kid’s couch because you did not save for retirement?

Getting a late start to saving doesn’t mean that a comfortable retirement is out of reach. It just takes a little bit more commitment to make it happen. Taking these steps will go a long way toward helping make it happen whether you’ve been saving for 20 years or just 20 months.

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Retirement Might Be Cheaper Than You Think

September 21, 2017

If you’ve ever met with a financial advisor/consultant/planner/representative, etc. (think “salesperson”), he or she may have given you a colorful graphic that shows how shockingly expensive your future retirement is going to be after inflation drives up the cost of everything you are going to need to live your future life. Not surprisingly, a survey from the TransAmerica Center for Retirement Studies confirms that outliving savings is a huge fear among retirees.

Maybe not

The logical solution then is to invest as much money as you can for as long as you can to avoid going broke before you go on to the great beyond, right? I’m going to go out on a limb here and say something very un-financial-planner-like: Maybe not.

Don’t get me wrong. Saving and investing for retirement is something we all need to do. While a graph that shows exponential increases in our future spending needs can certainly be an effective way to stir up the emotions and sell mutual funds and annuities, does it really describe your likely future spending needs?

Looking at data from actual retirees

Being the nerdy analytic that I am, the reality of retirement appears to paint a different picture when we take a close look at real data associated with people who have actually retired and had to spend the money they saved during their working years. This might be a bit of encouraging news if you are frustrated by having to set aside so much of your current income for your own unpredictable and uncertain future.

A 30% decline after age 75

According to financial planner colleague, Michael Kitces, ongoing data compiled by the Bureau of Labor Statistics’ Consumer Expenditure Survey and the National Institute on Aging suggests that retirement spending after age 75 appears to decline by as much as 30% from spending that takes place during the first half of a typical retirement. Furthermore, even after accounting for increasing health care costs (as we age, more stuff wears out and needs a doctor’s care), the decline in overall retirement spending continues to outpace rising health expenditures.

Don’t stop saving though

Hopefully, I haven’t encouraged anyone to give up entirely on putting money aside for retirement. At the very least, we should contribute to an employer’s retirement plan at whatever level helps us qualify for the most matching dollars. Free money is free money; take it! It’s also important to point out that you might need to set aside a bit more of your income to put your savings efforts on track with your future needs, but maybe not as much as those financial salespeople would have you think. Being able to replace at least 80% of your future retirement income is a good rule of thumb, for instance.

How much do you really need?

How can you quickly see if your future savings will replace at least 80% of your pre-retirement income? A good way to balance your retirement savings efforts with your desire to satisfy occasional YOLO impulses is to run a quick retirement income calculation. Fortunately, there are any number of free retirement calculators available on the Web to help you do this. Here at Financial Finesse, we are partial to our own Retirement Estimator Calculator, of course.

In the spirit of unbiased (okay, somewhat less biased) financial education and guidance, here are a few more calculators you might want to check out, including the Ultimate Retirement Calculator  or AARP’s Retirement Calculator, as well as Bankrate’s Retirement Calculator Center.

It’s still a good idea to save for your future retirement, just take any charts and graphs showing a huge shortfall from a financial salesperson with a grain of salt — he/she only makes money by convincing you to give him/her more of yours!

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How to Find an Extra $2 Million in Your Coat Pocket

December 21, 2012

A few things happened today and somehow when I pieced them together, it all made sense (to me, at least).  As I was putting my coat on this COLD morning (for the first time in nearly a year), I found a $20 bill in the pocket.  Talk about a great way to get your day started!!!  I was thinking that it was going to be a good day.  Continue reading “How to Find an Extra $2 Million in Your Coat Pocket”

When in Doubt, Balance it Out

October 05, 2011

As more and more of the onus of saving for retirement falls on employees, more and more employers will look for ways to enhance their retirement savings plans.  One of the emerging plan features that many employers are adopting is the addition of a Roth option in their 401(k) plan.  If and when an employer adds this option, it seems inevitable that employees will immediately ask “which option should I use?”  To help shed some light on this basic question, here are some things to consider: Continue reading “When in Doubt, Balance it Out”

Retirement Plan Enrollment: How to Get More Employees in the Game

July 26, 2011

Do you have a population of employees that are still on the sidelines regarding participating in your retirement plan?  According to a recent study by Aon Hewitt, 76% of eligible employees participated in their company’s DC plan in 2010, which means that almost 1 in 4 employees ARE NOT participating!  It just amazes me that even with the popularity of auto enrollment, there are still so many employees not taking advantage of saving for retirement. Continue reading “Retirement Plan Enrollment: How to Get More Employees in the Game”

GUEST BLOG POST: The 6 Reasons Why the 401(k) Is the Best Way to Save for Retirement

June 30, 2011

401(k)s have gotten some negative press due to the market downturn during the recession, which took a big toll financially on many employees. Even so, as someone who has dedicated my whole working life to retirement planning, specifically to the 401(k), I wanted to share six important points on why 401(k) are still a better vehicle for saving for retirement.

  1. The matching contribution. The vast majority of companies who sponsor 401(k) plans match your contribution into the plan. You can’t get that with any other savings vehicle. For example if you’re going to put money into an IRA nobody is going to come in and give you $0.50 for every dollar that you put into that IRA. Continue reading “GUEST BLOG POST: The 6 Reasons Why the 401(k) Is the Best Way to Save for Retirement”

Commit to Save and Retire Early

December 08, 2010

I just got back from a business trip where I sat down with employees to do some one-on-one financial planning.  The main focus for the majority of the participants was retirement planning.  I met with some employees who were just a few months out of college, and others who were a few months from retirement, so I’d like to share some of the perspective I gained during the trip. Continue reading “Commit to Save and Retire Early”

Do You Have a Retirement Maintenance Issue?

November 18, 2010

The other day I was flying back home from Tennessee when it came to my attention that my flight was being delayed due to a maintenance issue.  Now while I find this aggravating, I certainly would prefer getting home in one piece.  Amongst the ramblings (and choice “words”) that I overheard, was this statement: “Plane has been sitting here all night and they wait until morning to find this maintenance issue?”  I chuckled to myself as I gave the person a polite smile, but then I got to thinking… Continue reading “Do You Have a Retirement Maintenance Issue?”