Do You Have a Retirement Plan?

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Don’t end up working until you’re 80. Start planning for your retirement ASAP.

A recent survey by Wells Fargo found an alarming trend; 41 percent of those ages 22 to 35 had no retirement plan, including many with higher incomes. While many in this group face daunting student loan debt, waiting until that’s paid off is a bad long-term strategy. The earlier someone begins investing, the better. It isn’t simply the number of years putting money aside. It’s about compound interest.

Financial advisers say that putting $6,000 annually into an account earning a 7 percent rate of return, beginning when an investor is age 45, will yield about $246,000 by age 65. Investing the same amount starting at age 35 will yield $567,000. If that same investor begins at age 25, the final total will be close to $1,200,000.

The goal for retirement planning is to try to put at least 15 percent of income into some form of savings or investments. But, even those with incomes below $40,000 can begin to save and invest for their later years. A 20-year-old who starts saving only $100 a month and finds an investment paying 8 percent will end up with $18,000 in only 10 years.

According to Lauren Brown, a Certified Financial Planner with Innovate Financial, good place to start saving is with an employer-matched 401(k) plan. In 2019, the limit for a 401(k) rose to $19,000, she says. “If your company offers a 401(k), you should try to put the limit or more into your company’s plan. But even a small amount is a start. You can increase your contribution as your income rises.”

Another good investment option for millennials is a diversified Roth IRA. If you have reached your limit with your company’s 401(k), or if your company doesn’t offer a 401(k) with matching funds, this is another way to invest additional money. A Roth IRA is a stock-based retirement account funded with after-tax dollars, in contrast to a traditional IRA or a 401(k), which is funded by pretax dollars. Money from these accounts is tax-free at age 59½ or after five years of investing. With regular IRAs, money invested is taxable when it’s withdrawn at retirement.

One of the most important rules for investing is to look long term. Right now, the markets are volatile, but for those with 20 to 40 years to invest, a monthly contribution into an investment account is a wise strategy. It’s important to set up accounts so that a set amount is automatically deposited, every month, on the same date. This technique is called dollar cost averaging. In some months, the market might be high on that date and in other months, low. But in the long term, this will even out.

And while “buy low, sell high” is good advice, you shouldn’t try to time the market. One of the worst things an investor can do is to react to the market’s ups and downs by pulling money out when the market drops, said Brown. “The people who have jumped in and out, cashing out when the market goes down, miss upswings, which can make up for any downswings.”

While adjustments need to be made with changes in income or as someone gets closer to retirement, these should be done slowly and carefully. Avoid any get-rich-quick schemes. Don’t fall for “it’s a once-in-a-lifetime chance” with investments. Stay disciplined and stay focused.

First, said Brown, put aside cash money and never touch it unless there is a true emergency such as a medical expense or a job loss. How much? “Add your mortgage or rent, insurance, car payments and other necessary expenses and multiply by three to six months. Put this into a liquid account like a bank savings account. If something happens, you’ll never have to touch your retirement fund.”

In addition, get rid of bad debt. While some debt, such as student loan debt, auto loans or mortgages, is unavoidable, pay down credit card debt and avoid using credit cards if you can’t pay them off quickly. Keep a record of your spending. Get in the habit of saving becomes automatic (and less painful).

Once retirement funds begin to grow, investors should seek the advice of a Certified Financial Planner, a Charted Financial Analyst or other professional whose credentials have been verified.

These are people who have a fiduciary duty to their clients to make decisions in their client’s best interests.

“Millennials,” said Brown, “have seen their parents hurt financially during the Great Recession. That makes them tend to be skittish.” But, she advises, don’t let this stop you from planning for a financial future and a comfortable retirement. The sooner you can start planning, the better off you’ll be. ■

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