Oct 29, 2020
Erin L. Weber, CFP®, CPFC®
“If I had to do it all over again, I woulda invested more money, coulda done it more often, and shoulda had more money in my retirement plan,” Matt said, looking at his online statements over the tops of his glasses. Unfortunately, he is not alone in his sentiments. Like so many others, retirement for Matt was once way off in the distance ... until it wasn’t.
Bankrate’s Financial Security Index survey found that 56 percent of their participants experienced financial regrets when it came to saving. Not starting early enough was at 27 percent, underfunding an emergency fund was at 19 percent, and underfunding their children’s education accounts was at 10 percent.
No One Wants to Live With Regrets
I run into “Matts” all the time, especially when doing webinars and dealing with a lot of people who are beginning to gain knowledge of their finances. Once they start to get this knowledge, they usually say, “If I had only done this sooner.”
As I see it, people are not educating themselves until later in their careers. They start to think, “I am getting closer to retirement and I need to think more seriously about it.” Despite what some scholars say about not having “do-overs,” per se, it is my opinion that it is never too late to start investing. Sure, starting in your 20s and having this type of knowledge in your first job is going to put you further ahead than starting in your 40s or 50s, but it is still doable.
Many of our clients come to us in their 50s or 60s and they, too, are thinking about retirement. That’s when woulda, coulda, shoulda really comes out. I then ask myself, “Why didn’t they do it sooner?” “Why it is just hitting them now; knowing retirement is closing in on them?” Work, family and having other financial obligations take the top spot.
Preparing Sooner Helps You in the Long Run
The sooner you start planning for retirement, the easier it is going to be when you reach your 50s or 60s. That’s the truth. As Hefren-Tillotson advisors, we provide that “sleep well factor” so you do not have to worry about the future.
I have also found that people who don’t have a retirement fund at least have an emergency fund, and that’s where they do a lot of their investing. While there may be lots of money sitting in a checking or savings account, many people are not letting it work for them.
We look at their emergency fund to see if it is too excessive. Can they use some of that money and invest it? In a single income household, it is recommended to have six months’ worth of expenses. In a double income household, three months’ worth of expenses is recommended.
For those that don’t have an emergency fund, we encourage them to create one before they start saving for retirement. If anything should happen to them, they’ll need cash to cover their expenses.
Starting With the Basics
In my webinars I hear: “I don’t have a job any longer as a result of COVID-19. How am I supposed to save for retirement?” The answer is budgeting. When it comes to investing, one of the most important things is budgeting. It is a great practice for yourself, your family, and for you to understand what is coming in, what is going out, and how much you are spending each month.
You cannot possibly save for something if you don’t know what your expenses are and how much you could be saving. Look at your expenses and find the areas where you can start cutting. Saving money in those areas will help you get by until your situation changes. Even if you are saving $200 or $300 dollars each month, that’s money toward your retirement. You cannot make adjustments or changes unless you know what you are spending. I can’t emphasize this enough.
With credit cards, you sometimes don’t realize how much is going out each month. Nevertheless, it’s better to pay down your more expensive debt first. Remember that it is not an all-or-nothing kind of thing. It is a balancing act where you are paying down your debts while saving for retirement.
Here are some ways to start investing for your retirement now. A Health Savings Account (HSA) through an employer. You can max this out to save for your retirement.
If your company doesn’t offer a 401(k) you can start saving for yourself in a retirement account such as an IRA, which you can do even if you have a 401(k) that you are maxing out. You can also max out your IRA. That would be qualified money, which is money from earnings.
Beyond that, you could set up non-qualified accounts. You earned it, but it is not classified as retirement money. These can be set up to save for your retirement. However, this money is a bit more expensive because any gains will have to be paid on an annual basis, unlike qualified money that can grow and you don’t pay taxes on it until you take money out in retirement.
If you are in your 50s, you are probably in a higher income tax bracket. So, a Roth IRA might not be available. Whenever you are thinking about saving for retirement, consider the Roth accounts because they are great post-tax dollars saving vehicles where you’ll never pay the taxes on them again. The Roth 401(k) is newer, and it is not in all plans, but definitely, consider it – and in investing (and maxing out) a 401(k) at work.
You can always keep a Roth and a traditional IRA, but remember what the max numbers are. If you are just starting to do this in your 50s, you’re lucky because you have the catch-up provision of an extra thousand dollars. You could be putting $7,000 into that annually!
Now is better than never, and these options have the potential to avoiding a woulda, coulda, shoulda retirement. Let’s continue this conversation and start getting your finances in order today. Contact me below!
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