Regardless of your income, saving for retirement is an important goal that you should carefully plan for now instead of later. Time, for the most part, is on your side, and it is never too late to begin saving for it.
If there is one universal lesson to be gleaned from reading this story, that is it, say local financial and insurance experts Matthew Kneifl and Matt Cale. Find someone you can trust who understands your goals and values, then work with him or her to create a retirement savings plan and stick to it.
“The biggest regret many people have is that they didn’t start saving for retirement earlier,” says Kneifl, a certified financial planner with Edward Jones in Windsor Heights. “You can decide to live on Social Security, or you can take retirement into your own hands and have the lifestyle that you’re looking for.
“For most people that means that they have to give up something today to have the kind of retirement they want, and that can be tough. So we look at their priorities and help them make decisions about how to live today and to save for tomorrow.”
Kneifl’s book of business is filled with clients who are well-to-do, but he says many of the things that he discusses with them are applicable to anyone who is getting started in saving for retirement. He says common strategies include identifying your financial needs or retirement, paying off credit card debt, establishing an emergency fund, enrolling in your employer’s retirement savings plans including a 401(k) or opening an individual retirement account (IRA) for those whose company does not offer a 401(k) or are self-employed. They not only help people plan for retirement but help them better understand their overall financial picture, which might include paying for health costs, saving money for college or taking an expensive vacation.
“The first step is talking to someone you trust,” Kneifl says. “The people I work with are very open about their finances, which is what you need to work well together.
“You want someone who has a positive attitude and is detail oriented when looking for an adviser. Eight years ago when I started knocking on doors in Windsor Heights, I made it perfectly clear to my clients that I didn’t expect their business; I wanted to earn it.”
Kneifl says he discusses with his clients in detail a number of steps to save for retirement. They include accumulating wealth and establishing a household budget, distribution of wealth, managing risks, establishing an efficient transfer of wealth for loved ones and the convenience in which your financial adviser is able to manage every important detail for you.
“Most people are scared of budgets, but they are very important to understand what you are spending so you can plan for spending in retirement,” he says. “A lot of it depends on what kind of lifestyle you are used to living. You might be frugal and only need $500,000 for retirement. Others might spend more money and might need $2 million.”
The best way to accumulate wealth for retirement, Kneifl says, is to participate in your company’s 401(k) savings plan if one is made available to you. Most important, be sure to contribute to it at an amount that is equal to the maximum matching contribution that your company offers.
“It’s free money,” he says. “Most people I work with who have a 401(k) also have a Roth IRA or a traditional IRA or a SEP (self-employed pension) account.”
He says if you change jobs and switch to a company that does not offer a 401(k) savings plan, it is important to roll over your previous 401(k) savings into a tax-deferred IRA. Those under 50 can now contribute up to $5,500 compared to $5,000 last year for an IRA and Roth IRA. Investors can also add another $1,000 to the account if they are more than 50 years old as part of a new “Catch Up” provision for IRAs, too.
“Don’t cash it out; the penalty is big,” he says. “It’s important to leave it in there and let it accumulate.”
Paying off your credit card debt, if necessary, is often the next step. It pays dividends, especially if you carry high levels of credit card debt at a high interest rate. Experts agree that reducing credit card debt should be a priority and that it is possible if you rein in your spending and use your credit cards wisely.
“That’s just using good common sense,” says Cale, owner of the State Farm Agency in Windsor Heights, noting that even though he is not a certified financial planner, he encourages his insurance clients to establish basic, healthy financial habits. “It’s a holistic approach, if you will.”
After that, experts say, start saving money for an emergency fund. Three to six months’ worth of salary is generally recommended. However, if your employer has experienced layoffs or is in poor financial shape, you might consider saving the equivalent of six to nine months in earnings.
“You need to have some cash on hand,” Kneifl says.
There are many ways to save money once you have established a household budget. One of the easiest ways to electronically transfer a portion of your paycheck directly into a savings account. Another suggestion is to establish a savings account at a different bank from the one you use for your checking account should you need further incentive to bolster your discipline to save.
“A good rule of thumb is to save 10 to 15 percent of your current income,” Kneifl says. “If you want to be ultra wealthy, then try to save 30 percent.”
After establishing a nest egg, you can begin to determine how you might spend your money down the road. Wealth includes 401(k) and IRA plans, Social Security, annuities and personal assets.
“People worry that they will run out of money when they retire,” Kneifl says. “But an adviser can help take the fear out of that.”
Kneifl and Cale also suggest buying insurance to help protect your earnings and your family.
“A lot of people have term life or some death benefit that might be worth $50,000 or $100,000,” Kneifl says. “They also need to think about things like long term care and disability.”
Cale concurs. He helps clients by creating an independent financial review that allows them to see the many options available to them.
“We look at their risks and needs and what would happen, for example, if they were to lose their assets,” he says. “We talk about insuring their income with life insurance and disability insurance and what happens to their spouse and children in those instances.
“We also talk to them about other retirement solutions such as mutual funds. We look at what they have saved so far and whether they are on track for retirement. If not, there are ways that we can help.”
Insurance, Cale says, is sometimes overlooked when planning for retirement.
“People usually think of coverage they have for a death benefit, but there are other things they need to think about. If you don’t do a good job with insurance, it could lead to a situation that might tap into your assets,” he says. “I always ask people if their protection wall is big enough to protect their assets. Everything is connected.”
So, too, are the reasons that people save money, whether it is for retirement, a college education or a vacation. Most parents or grandparents, for example, want to contribute to the college education savings plans for their children or grandchildren by pouring money into a 529 savings plan.
“There’s nothing wrong with that,” says Kneifl. “But I encourage parents and grandparents to save for their retirement first. Then they can kick in money for college after that. It’s not uncommon for people to want to help their kids, but they need to help themselves first.”
Kneifl says he also reminds clients to set aside money for health costs and estate planning so that they not only have enough money for those items, but so that it is easy for their family to comprehend when the time arrives.
“We want people to organize their finances and estate so that they can transfer them easily,” he says. “Those things, like planning for retirement, take time and require help to plan for, and you don’t want to wait until the last minute to start thinking about those things.”