Retirement Planning: A New Year’s Resolution Worth Keeping

retirement planningEvery January, people across the world set new year’s resolutions—from saving money to losing 15 pounds, the start of a new year is a chance to plan for the future and reach new milestones. One resolution that should be at the top of your list? Retirement planning.

Dedicating time and energy in the new year to planning your retirement has the potential to generate benefits for the future and help you reach financial independence on your terms. If you are one of the 80 million millennials in the United States, the benefits of starting your retirement planning early are immense, and there’s no time like the present to start saving and investing.

No matter where you are on your financial journey—from regularly contributing to your employer’s 401K to having to Google “What’s the difference between a Roth and Traditional IRA?” this time of year is a great opportunity to educate, outline, and refresh your retirement plans.

With that said, we understand that planning for retirement can be intimidating and is likely to fall down your growing list of to-dos. Don’t worry, you are not alone. According to a recent survey from Earnest, Amino and Iposs, only “30 percent of millennials are contributing to a retirement account” and the remaining 70 percent are continuing to put retirement planning on the back burner (CNBC).

And we get it, especially during the holidays, when your schedule is full of parties and you have an endless amount of shopping to do for friends and family—the last thing you want to do is work on retirement planning. To help ensure that this time next year you aren’t still twiddling your thumbs, wondering how to plan for retirement, our team has outlined our top recommendations for retirement planning that will help set you up for success as you progress towards your financial milestones.

Think About What Retirement Looks Like For You

If you are in your 20s or 30s, the last question you are probably asking yourself is, “How much money do I need to maintain the lifestyle that I want when I’m 70?” Between paying off student loans, building your career, or buying your first home, you have plenty of financial decisions that are already pulling you in different directions.

However, you must dedicate time now to plan for your future. To help estimate how much money you’ll need to live the way you want in retirement —whether that starts at 45 or 65—here are a few questions you should address (noting that some of these questions may or may not apply to you):

  1. What amount do I currently have in my savings?
  2. What is my expected salary growth rate?
  3. Does my employer offer an matching contributions? If yes, am I fully taking advantage of their match program?
  4. What age do I want to retire?
  5. Will my spouse retire before or after me? How will their retirement impact our savings?
  6. Will my children be financially independent when I retire?
  7. Can I estimate what my expected largest living expenses will be at retirement (i.e. mortgage, insurance, etc.)?

It’s important to remember that your responses are most likely an educated guess. In order to evolve with changing circumstances, it’s recommended, especially if you calculate your target savings goal in your 20s or 30s, to review and refine these calculations as you reach your 40s and 50s.

Another helpful resource that should be utilized when determining your target savings goal are retirement planning calculators. For example, American Heritage Federal Credit Union provides a number of online planning calculators, including:

Don’t Wait. Set Up Your Retirement Savings Account ASAP.

Now that you have your retirement goals in mind, it’s time to consider how you will get there. From compounding interest to tax benefits, an Individual Retirement Account (IRA) is a great way to make inroads on your retirement plans and achieve your target savings goal.

From Traditional to Roth, you can invest in an IRA that will meet your needs based on your current financial situation and goals. For example, a Roth IRA is especially appealing and beneficial for millennials, but can be an appealing option at any age. Here are few reasons why a Roth IRA may be a good choice for your retirement planning strategy:

  • Money Grows Tax Free: When you contribute to a Roth IRA, you are contributing dollars that you have already paid taxes on, so your money grows tax free over the years, allowing you to withdraw at retirement, with no additional taxes due.
  • Your Money is Accessible, If Needed: While there are benefits to having an emergency savings account, the downside is that “maintaining an emergency savings account is like filling up a leaky bucket. It’s never going to be full, and if you don’t pay close attention, it will be empty very quickly. In a pinch, a Roth IRA could provide some quick cash. That’s because Roth contributions can be withdrawn penalty-free at any time (Bank Rate).” Note that any appreciation on your initial Roth contribution may be subject to taxes and a 10 percent early withdrawal penalty, if withdrawn before the age of 59 ½.
  • Use for a 1st Time Home Purchase: While a Roth IRA is typically viewed as retirement savings account, it can also be “used for a first-time home purchase” and will “allow you to withdraw up to $10,000 for a first time home purchase”—a benefit that is especially appealing if you are a millennial looking to buy your first home (U.S. News).

Whether you choose a Roth IRA or another type of retirement savings account, the key to success and reaching your retirement savings goal is committing to putting away as much as you can, as early as possible.

Save. Save. Save.

Before you can make progress on your retirement planning, it’s important to review your current spending habits with a weekly or monthly budget—which will help identify any unhealthy spending habits that could be reallocated to your retirement savings (read more about this in our guide to creating your first financial plan.) Whether you are a single graduate student or are married with two kids, setting up and using a regular budget planner will help set the foundation for financial success.

According to a recent article in Money, “The goal, in short, is to live far below your means so that you can shovel away an outsize portion of your income. How much? Aim for at least 30% financial planners say vs. the conventional target of 10% to 15% for a typical 40-year career.” Depending on your spending habits and what you uncover in your budget planner, below are a couple of ways that you can reach your 30% savings goal:

  • Skip the Starbucks: Last year, millennials reportedly spent $96 billion dollars on food and beverage. Cut down on unnecessary dining out expenses, by putting that Keurig to good use or inviting friends over for a potluck style dinner.
  • Consider a Cash Back Card: The benefit of a cash back card, like our Cash Reward MasterCard® is simple—you get cashback on every purchase you make, with no annual fees or balance transfer fees. Plus, you get a special $150 bonus on your first $1,500 of purchases.
  • Be Proactive: Dave Ramsey, a personal finance author and radio host, said it best when he said: “Tell your money what to do, instead of wondering where it went. Be proactive with your money—do a budget, get rid of debt and save (Forbes).”

Interested in learning more on how you can reach target savings goals? Contact a member of our team today, and we can work together to help with your retirement planning.