It’s never too soon to begin thinking about how to fund your life once you stop working. Some Webster City financial experts share their advice on preparing a retirement plan.
“Pay yourself first” is Tim Finucan’s main piece of advice when it comes to saving and investing. The Edward Jones Financial Advisor says paying yourself first, or putting some money aside in savings each month before making other financial commitments, is critical when saving for the long term. He gives that same advice to all age groups — even kids. “I talk with kids at the middle school during their career unit, and I always tell them that it’s important to pay yourself first, and to be disciplined about your savings. Even if it’s a 12-year-old and babysitting money, it’s the best advice at any age,” he says.
Finucan, who was named one of America’s Top 1,000 Financial Advisors for 2012 by Barron’s magazine, sits down with his clients to discuss and assesses what their risk tolerance is for investing, and plans their portfolio accordingly. Factors such as age and income go into the formula for what kind of lendership/ownership balance works for that client.
“Within the parameters they give me, I build portfolios for them,” he says.
It’s important during middle age to be proactive with one’s saving and investing.
“You need to be diligent and aggressive, giving as much to your savings and retirement accounts as you can; literally give till it hurts,” he says.
Finucan suggests taking advantage of retirement plans in the workplace and loading them up as much as possible.
“There’s no amount that’s too small when you’re planning for retirement,” he says. “You just have to do it. There will always be excuses not to.”
Finucan stresses the importance of having a retirement strategy.
“People need to be self-reliant and take care of themselves and plan for their own retirement,” he says. “Take time to actively plan; don’t hope and wish for something else.”
Finucan strives to educate his clients on market trends and retirement planning.
“I want them to understand that investing comes with a degree of risk, and that they need to be prepared for that so they don’t do anything silly in the down markets,” he says. “Don’t let short-term fluctuations in the market scare you out of good long-term investments.”
Working with an experienced financial counselor you know and trust is important, Finucan says. “In this industry, there’s no substitute for experience,” he says. “Having a good financial advisor is invaluable.”
Finucan points out that he relates well to his clients because he is an investor himself and shares the same concerns and goals.
“I eat my own cooking. I share the same investments my clients do,” he says.
“The magic ingredient of investing is time,” he says. “Be a long-term, disciplined investor. When markets are going down, go talk to your financial advisor and heed their advice.”
Jeffrey Brandt at Ameriprise Financial Services Inc. says there are three things those planning for retirement should have in place: three- to six-month’s salary cash reserve for surviving emergencies; two years in a safe investment in case of market emergencies like the U.S. saw in 2008; and a long-term balanced investment portfolio that might contain half stocks and half bonds.
When meeting with clients to establish a portfolio, Brandt analyzes data such as potential sources of income, the client’s capacity to save, their insurance and taxes, and then comes up with specific solutions.
“I look at everything and weigh their comfort level with aggressive versus conservative approaches,” he says. “More than half the time, taking a conservative approach has a better outcome than being aggressive.”
“We all have the same products,” Brandt says.
His advice when looking to work with an investment counselor is to find someone you trust. His company utilizes a team approach, relying on different counselors to assist in their area of expertise. For example, Ameriprise employs a Chartered Retirement Planning Counselor, or CRPC. Cierra Walding is a Certified Financial Planner specializing in retirement planning.
The days of investment clubs and personal investment management may be waning, Brandt says, as more people are utilizing the experts.
Those planning for retirement need to meet with their counselor on a regular basis to review their portfolio, and rebalance if necessary, depending on what the current markets are doing. He advises clients to keep up on the trends, to broadly diversify and rebalance from time to time.
One Webster City couple working with a financial advisor to be proactive with their retirement planning is Todd and Amy Steen. Todd, 43, is the controller at Summit Farms in Alden; Amy, 44, is a special education teacher at Webster City Middle School. They are parents to son Dylan, 12, and have been married nearly 20 years.
“We started our retirement planning right out of college,” Todd says. “We probably didn’t realize the importance of it until we were more established,” Amy adds.
As the professionals advise, the Steens have let time work to their benefit. As a teacher, Amy has a retirement plan with IPERS, a prefunded retirement plan for public employees. Todd has a good 401K plan with his employer, and says, “I max it out as much as I can.”
“We’ve had time on our side and been pretty aggressive,” Todd says. “As we near retirement, we’ll back off a bit on the risk factor.”
Together they have worked with their financial advisor, meeting quarterly to talk about how their portfolio is doing and making any adjustments necessary.
“He lets us know about any good opportunities,” Amy says.
The Steens discuss their financial future regularly and make sure they’re in agreement on related decisions.
“Todd does a nice job helping me understand it all,” Amy says.
Both Todd and Amy’s parents are retired, and the couple says their parents have served as good role models for setting retirement goals. Like their parents, the Steens have similar retirement aspirations, such as traveling. Saving for Dylan’s college education is another of their goals.
“We want to have the financial freedom to retire when we want to and to be able to enjoy it,” Todd says.
As controller at his workplace, Todd often helps employees make financial decisions and urges them to pay themselves first with savings and retirement plans.
“My number-one piece of advice I tell people is to work with a financial advisor, no matter how much or how little you put in. And max out your 401K to the extent you can,” he says.
“Ideally, you should start earlier than 40,” suggests Dan Corrow of Central Financial Group. He also advocates starting retirement planning as early as possible. “Those who do — even in their 20s — are head and shoulders above their counterparts,” he says.
Corrow is noticing that after the stock and bond markets have been so low in recent years, people are looking for products that will help them accumulate more money but aren’t so risky. One to consider, he says, would be an annuity with “living benefit” features that guarantee certain payouts for life or other lifetime benefit, regardless of what happens in the stock market.
“There have always been annuities with death benefits paid to the survivors, but the living benefit annuities have been really popular lately,” Corrow says. “Regardless what happens to the markets, you know that you have guaranteed income.”
The cost of purchasing a variable annuity with living benefits can be higher than buying a life annuity and the risk of your living a long and happy life is borne by the insurance company providing the annuity.
“You do pay for these benefits, but if you look at what you’re paying for, it’s worth it,” Corrow says. He suggests that people in the 40- to 60 year-old age group take a look at those products.
A former teacher, Corrow says he hasn’t lost that educating concept when working with clients.
“When I sit down with a client, I try to teach them something,” he says.
Talking about potential market risks is a topic he covers, helping them discover their concept of risk, and letting them know, “… it’s not so much whether you take risks, but what risk you’re going to take that you’re comfortable with.”
Corrow also notes that when looking for an investment professional, it’s important to choose a company with a long-term history, which is broad-based with varied insurance products and diversified enough that you have a reasonably good idea the company will be around for years to come.
A growing market in investing, Corrow notes, is women — single, divorced, or widowed — who are interested in learning more about investment and retirement options.
Will Johnston, Financial Advisor at First State Bank Investment Services, cautions retirees on some classic financial missteps that plague them, such as leaving work too early.
“The full retirement age for many Baby Boomers is 66,” he says. “As Social Security benefits rise about 8 percent for every year you delay receiving them, waiting a few years to apply for benefits can position you for greater retirement income.”
Underestimating medical expenses, retiring with a large amount of debt and taking the potential for longevity too lightly are among the topics Johnston brings up with clients. Putting college costs before retirement costs is another mistake Johnston tries to help clients avoid.
“There is no ‘financial aid’ program for retirement. There are no ‘retirement loans.’ Your children have their whole financial lives ahead of them. Try to refrain from touching your home equity or your IRA to pay for their education expenses,” he says.
ISU Extension and Outreach Family Finance Program Specialist Barb Wollan recommeds to start by thinking realistically about retirement expenses, then consider your options for controlling the timing and duration of your retirement.
“Be a smart consumer when it comes to your saving and investment decisions,” she says. “If you have goals that involve significant travel or living part of the year in warmer climates, recognize the costs involved. Recognize that even low inflation has an impact. For example, a lifestyle that costs $30,000/year today will cost $84,000/year after 35 years of 3 percent annual inflation.”
Wollan also brings up one very important consideration — planning for more than finances.
“Invest your time as well as your money by building relationships, hobbies, volunteer interests and good health,” she says. “Having plenty of money in retirement won’t do you any good if you don’t have good quality of life.”