Retirement Planning Tips for Every Stage of Life
Leisl L. Cording, CFP®
Senior Vice President & Financial Advisor
For most people, retirement planning is one of the most important components of their overall financial plan. Whether you’ve just graduated and taken your first job or are preparing to retire, your employer-sponsored retirement plan can play a key role in your financial strategies.
Here are some tips on how to plan well and invest well at each stage of life so that you can live well in retirement.
If you're just starting out:
If you’re only a few years or less into your career, chances are you’re juggling college loans, rent, and car payments on an entry-level paycheck. It may be tempting to delay saving for retirement for a while – after all, you’ve got plenty of time for that, right? Before you answer, consider this: the decades ahead of you can be your greatest advantage, thanks to the power of compounding.
Compounding happens when your plan contribution dollars earn returns that are then reinvested back into your account, potentially earning returns themselves. Over time, the process can snowball. Say at age 20, you begin investing $3,000 each year for retirement. At age 65, you would have invested $135,000. If you assume a 6% average annual return, you would have accumulated a total of $638,231. However, if you wait until age 45 to begin investing that $3,000 annually and earn the same 6% return, by age 65 you would have invested $60,000 and accumulated a total of just $110,357 – more than half a million dollars less than if you had started at 20.
So enroll in your plan and contribute whatever you can, and then try to increase your contribution amount by a percentage point or two every year until you hit your plan's maximum contribution limit. Time also offers an additional benefit to young adults — the potential to withstand stronger short-term losses in order to pursue higher long-term gains. That means you may be able to invest more aggressively than your older colleagues, placing a larger portion of your portfolio in stocks to strive for higher long-term returns.1
If you’re getting married or starting a family:
You will likely face even more obligations when you marry and start a family, and the list of monthly expenses seems endless. Although it can be tempting to cut your retirement savings contributions to make ends meet, do your best to resist temptation and stay diligent. Your retirement needs to be a high priority.
Are you thinking about taking time off to raise children? Remember that leaving the workforce for prolonged periods can hinder your ability to set aside money for retirement and also may affect the size of any pension or Social Security benefits down the road. So if you take time off from work to raise a family, consider temporarily increasing your plan contributions before you leave and after you return to help make up for the lost time and savings. Or perhaps your spouse could increase his or her contributions while you take time off.
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If you're reaching your peak earning years:
With 20+ years of work experience behind you, you could be reaping the benefits of the highest salary you've ever earned. With more income at your disposal, now may be an ideal time to kick your retirement savings plan into high gear. If you're age 50 or older, you may be able to take advantage of catch-up contributions, which allow you to contribute up to $26,000 to your employer-sponsored plan in 2021, versus a maximum of $19,500 for most everyone else. (Note that some types of plans have different limits.) In addition, if you haven't yet met with a financial professional, now may be a good time to do so. A financial professional can help you refine your savings goal and investment allocations, as well as help you plan ahead for the next stage. 2
If you're preparing to retire:
With just a few short years until you celebrate the major step into retirement, it's time to begin thinking about when and how you will begin drawing down your retirement plan assets and familiarize yourself with required minimum distributions (RMDs). The IRS requires that you begin drawing down your retirement plan assets by April 1 of the year following the year you reach age 72. If you continue to work for your employer past age 72, you may delay RMDs from that plan until the year following your actual retirement.3
You might also want to adjust your investment allocations with an eye towards asset protection. A financial professional can become a very important ally in helping to address the various decisions you will face at this important juncture.
No matter what stage you're at:
As you make decisions about your plan on the road to retirement, be sure to review it alongside your other savings and investment strategies. While it's generally not advisable to make frequent changes in your retirement plan investment mix, you will want to review your plan's portfolio at least once each year and as major life events (e.g., marriage, divorce, birth of a child, job change) occur.
A trusted financial adviser can also provide specialized expertise to help ensure your retirement planning and other finances are set up for the best possible outcome. At Weiss, Hale & Zahansky Strategic Wealth Advisors we’re proud to apply our strategic Plan Well, Invest Well, Live Well™ strategy process to help our clients do just that every day. See how we can help you to create your own strategy for living well in retirement.
Presented by Vice President, Associate Financial Advisor Leisl L. Cording, CFP®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259, 860-928-2341. http://www.whzwealth.com (http://www.whzwealth.com). © 2021 Commonwealth Financial Network®
1 All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful. Investments offering a higher potential rate of return also involve a higher level of risk.
2 There is no assurance that working with a financial professional will improve your investment results.
3 If you reach age 72 before July 1, 2021, you will need to take an RMD by December 31, 2021.
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