Your Retirement Planning Starter Pack

Young couple sitting on couch and reviewing their retirement plan.

By Jake Anderson, CFP®, Wealth Planner

When helping clients begin retirement planning, the same questions often arise: What should my retirement plan look like? How much should I be saving?

Although there are some basic guidelines, your financial life is as unique as your fingerprint. Your lifestyle, goals, family situation, and risk tolerance will give a unique signature to your retirement plan.
Let’s look at a few of the starting points today for a healthy retirement savings portfolio. Whether you’re just starting out or you need a refresher, you’ll want to make sure these retirement planning basics are in place.

Decide What’s Most Important – Now and When You’re in Retirement

Start now, embrace the flexibility of your unique situation. Early stages of life can be financially frustrating — from student loans and first-time home purchases to daycare and growing a family, it may feel like there just isn’t enough money to go around. Be mindful, however, that the power of compound interest rewards early savers, so any amount in which you can save will benefit your future retirement.

We like to think of this as paying yourself first. The money you invest now will become your “paycheck” in retirement. Find out where you can cut back, if necessary, so you ensure you get paid. Most individuals choose to have a certain amount of money transferred from each paycheck directly into their investment accounts so they don’t even have the option to spend it. Take control of the situation by putting yourself in a position to live the life that you want to live now and in the future.

Revisit Your Plan Regularly

Revisit your plan regularly to make sure you are on track. To achieve your desired goals, your retirement plan shouldn’t be set-it-and-forget.

Nobody holds the crystal ball that can predict exactly what the future has in store — if they do, I want to know where I can get one! While we plan with the most accurate information we have today, it’s inevitable that life will move in directions we didn’t expect. Goals will evolve, and thus our plan must evolve as well. Reviewing your plan on a recurring basis will allow you to view your progress and make any necessary changes.

Take Advantage of Your Employer’s 401(k) Match

Most employers offer a 401(k) plan. In many cases this will be one of the primary vehicles for individuals to save for retirement. Being that it plays such a vital role, it’s important to review the benefits offered by your specific employer.

You may already be doing this, but let me emphasize it again, make sure you take advantage of your employer’s matching program. By contributing up to the matching limits, you’re essentially getting free money. And who doesn’t love free money?

The current limit for contributions to a 401(k) in 2024 is $23,000, which is generally above the amount of an employer match. If you can swing it, I suggest contributing up to the employer match amount, and then consider any leftover funds to be invested into an Individual Retirement Account (IRA).

Set Up Another Retirement Account

Individual Retirement Accounts (IRAs) may offer tax advantaged savings as well. Should I invest in a Roth IRA or a Traditional IRA? Another open-ended question with no right nor wrong answer. A variety of factors will play into whether a Roth or Traditional IRA makes sense for one’s individual situation.

Personally, I think Roth IRAs are better for younger people just getting into investing. Contributions are taxed on the way in with these accounts. Most likely you are going to be in a lower tax rate now versus when you are older, which makes it a more tax advantageous way to save. By paying taxes on the front end, you’re able to let the account grow tax-free. There are income and contribution limits, both of which are important but often not an issue with a young investor.

With the Traditional IRA, you can deduct contributions from current year taxes so the money grows pre-tax. This model may be more beneficial for somebody making more money and consequently in a higher tax bracket.

Develop Your Personal Asset Allocation

Now that have your 401(k) and IRA open and funded, how can you determine the correct asset allocation for each?

Again, I wish I had that crystal ball! As it is in life, you often get one thing and not the other. The same goes for investing, you cannot be conservative and expect to beat the market.

My favorite wealth management proverb is: “It’s not about timing the market, it’s about time in the market.” The longer the time horizon the more risk you’re most likely able to tolerate. Someone closer to retirement will look at more conservative investments since they will need the cash in the near future. If you’re younger and have more time, you can be more growth oriented.

Keep in mind everyone’s investment style is different and changes over time. Quite often, two spouses will even have different investment styles, and there is nothing wrong with that!

It’s important to continually track your risk tolerance to make sure your goals and expectations are aligned with the risk you’re willing to take. Check out the risk tolerance survey to get an idea for your risk profile and help you start your personal finance journey.

Looking for personalized retirement planning advice? Our financial advisors are here to help. Talk to us today.

Jake is a Non-registered associate of Cetera Advisor Networks LLC, Member FINRA/SIPC.

This article is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.

Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.

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