A high school guidance counselor gave Brian Bierstedt a great piece of advice that he carried into adulthood: If you save $2,000 a year, you could be a millionaire by the time you retire.
Those words of wisdom inspired Brian and wife, Dena, of Norwalk, to immediately start putting money into their 401k retirement plans as soon as they started their first jobs at age 22. The two have always contributed the maximum amount that their companies would match, even during more challenging times, such as the arrival of their two children, both of whom are still young and live at home.
Lance Eddie, a financial planner with Edward Jones in Norwalk, says the Bierstedts aren’t too far off. As soon as a person has his or her first full-time job, he or she should either contribute to their work retirement plan or put money into a Roth IRA. Eddie himself says he’s been investing for retirement since he was 11 years old.
Brian Bierstedt jokes that he’s wanted to retire since he was 24 years old. But realistically, he says he’d like to be able to retire by age 60. Dena might work longer, as they haven’t decided what they’d like to do in retirement.
“We want the flexibility to do what we want, but we haven’t said ‘This is what we’re going to do’ yet,” he says.
Eddie says on average, most people retire between the ages of 62 and 66. However, some clients have done a great job of saving their money and are able to retire as early as age 55. Others couldn’t retire until age 70 because they still had a mortgage or other debt to pay off.
He says most people begin to think about planning for retirement at age 42, when they should have begun years before. The earlier a person wants to retire, the earlier they need to start saving and the quicker they need to pay off their debt.
“What we’ve found is depending on the lifestyle the person wants to live, that’s not really realistic,” Eddie says. “Most people are going to find themselves plenty short.”
He says he meets lots of people who are in their 50s and haven’t started saving for retirement. They therefore think they’ll never be able to retire.
“I would encourage them not to get discouraged,” Eddie says. “Start with something you can afford. Something is going to be better than nothing.”
But his biggest piece of advice is to start saving for retirement as soon as possible.
If people begin to prepare for retirement in their 20s and 30s, they don’t have to be as careful about the risks their taking in their investments, he says, adding that people should still talk to a financial professional about what types of investments to pursue including various tax savings strategies.
Eddie says if young people are saddled with debt and can’t invest or save much money, they should still aim to save at least $25 a month to get started.
The Bierstedts have been working with Eddie. He has helped them rolled over their 401k plans as they’ve left jobs into IRAs or Roth IRAs. The couple also recently refinanced their house with a 15-year mortgage, so it can be paid off before they turn 60. They’ve also set up their life insurance policies so that they’re done paying for them when they turn 65.
Brian says there have been some bumps along the way in saving for retirement. He’s had pensions at two different companies, where the company stopped putting in contributions so the accounts froze. At one company, he was able to take a small portion of the pension and roll it into an IRA when he left.
“That was kind of a setback,” he says. “That happened to me twice in the past three years.”
The couple’s 401Ks have bounced around during times of a weakened economy, but Brian says they’ve always kept with their same plan and kept making contributions with the confidence the accounts would recover, and they have.
Brian says they hit a positive turning point a couple of years ago, when the 401(k)accounts started to make more money than the Bierstedts were contributing to them.
His advice for people who are planning for retirement is to create an emergency savings fund, continue to contribute the maximum match to their 401k accounts, and pay for their children’s education and pay off their mortgage before retirement. He says key to that is the fact that he and his wife have never had any credit card debt or debt besides their mortgage or one car payment.
The couple has talked about what kind of lifestyle they want to have in retirement.
“We said we want to have enough to have at least 80 percent of what we’re making today,” Brian says.
Eddie says when planning for retirement, people need to consider where they will live and whether they plan to keep their house; how much income they will have to replace in order to meet the lifestyle they want to live in retirement; what they will do with any work pension that is received; whether they will have guaranteed income sources such as the pension or if they have investment income that could vary depending upon the market; what will happen to the household income if a spouse dies prematurely; and how they will pay for nursing home or assisted living facility care.
Nursing home or assisted living care insurance is expensive, Eddie says, but 70 percent of retirees will need it in their lifetime. He says sometimes people wait too long to buy it, and by then it’s too late because it can be tough coverage to apply for and receive. One option is to look at a plan that combines life insurance with long-term care.
Sandy and Terry Donohoe both retired at age 55.
Terry had worked as a paramedic and then a fire inspector for the city of Des Moines. He finished 30 years with the city to qualify for full employment. Sandy continued to work for four more years and then retired from Iowa Health-Des Moines. Family circumstances — the death of her father and the need to help her mother who is suffering from Alzheimer’s disease move into a memory care center — contributed to Sandy’s early retirement.
“You learn to appreciate life at a different level when you have lost loved ones,” she says, adding that she had previously had a brother who had died.
Sandy says the couple knew from the time they were married in their early 20s that investing in their 401k retirement plans was important, so they did. The couple also had their three children at a young age, which helped them get the college educations paid for earlier than if they had waited to have children.
The couple bought a house early in their marriage, but they kept their debt low and only bought what they could afford.
“I think prudent investing and prudent managing of our bills is what allowed us to be able to retire when we did,” Sandy says.
Terry receives about 84 percent of his salary in retirement, plus has his 401k. In addition, they paid off all of their debt prior to retirement. Sandy’s retirement is in IRA accounts, which she says will help them later in retirement. The couple began meeting with a financial adviser halfway through her second career. She rolled over her retirement account from her first job into a new one, which the adviser watches over.
Sandy says they may have to change their lifestyle slightly in retirement but will still do many of the things they did while working. This includes some travel. Terry is a scuba diver, and the couple used to travel to the Caribbean twice a year. Those trips may drop to once a year in retirement; however, they’ll still go. The couple also likes to ride their Harley Davidson motorcycle on cross-country trips during the summer.
Sandy says her biggest piece of advice for people who are planning for retirement is to limit credit card debt as much as possible and to live within their means.
“You don’t have to have it all,” she says. “You can’t live like your parents. It took us a long time to get where we are. You have to start out and live within your means.”
Also, Sandy says, people should save as much as they can, even if it’s only $20 a paycheck. And, they need to make sure they participate in retirement accounts offered through their employer. If an employer matches a contribution, the person needs to make sure to maximize the match with the highest amount he or she can contribute.
“Do everything you can to do this, because if you don’t, it’s just throwing free money out the door,” she says.