Forming Your Financial Future

aspirations about retirement

Regardless of your age, any aspirations about retirement require appropriate planning. There are certain suggested tactics that younger and older professionals can consider.

Retirement in this country is not what it used to be. Employer-sponsored pensions are increasingly becoming a sentiment of the past and, in part due to this reality, employees are much less likely to remain with one company for the bulk of their career. What’s more, the status of Social Security is expected to hit the crisis point that many of today’s professionals have long heard about. According to the most recent projections, the federal program’s costs are expected to exceed its income for the first time in more than three decades in 2020, which will force utilizing the available trust fund to cover current retiree benefits.1 Those benefits, however, are not infinite and the notion of being able to rely on Social Security to fund one’s retirement is not sustainable, with the 2019 average benefit of $1,461 being only 40% higher than the federal poverty level.2 On average, people are living longer and need to be that much more concerned with their retirement nest egg. According to the Centers for Disease Control and Prevention, at age 65 the life expectancy for the total population is 19.5 years, a slight increase from the 19.4 years reported as of 2016. As such, the onus on retirement planning rests on the individual employee to allocate portions of their income more than it ever has before, especially when considering that the “full-benefit age” continues to climb (and is expected to gradually rise to 67 years for those born in 1960 or later3). Regardless of one’s age, financial advisors suggested that a concentrated effort be given to properly preparing for a retirement that can be fulfilling and financially relevant. Doing so requires an appropriate plan as well as a willingness to avoid common mistakes. 

RETIREMENT TARGETS
According to the Employee Benefit Research Institute, only 42% of working-age people have tried to calculate how much they’ll need to save for a comfortable retirement. Without fail, the best approach that anyone can take to securing their financial future post-employment is to “save as much as you can,” said Patricia A. Tabloski, PhD, GNP-BC, FGSA, FAAN, an associate professor at the William F. Connell School of Nursing and author of Redefining Retirement For Nurses; Finding Meaning In Retirement. This is not a clichéd sentiment. Instead, it means that maxing out one’s savings potential when adding up income versus debt is a worthwhile tactic. This financial figure will be different for everyone for varied reasons and will be more challenging to commit to for younger professionals, not just because of the likelihood of more debt to be dealt with but due to a desire to spend more. “This type of saving may be difficult when you are just launching your career,” said Tabloski. “You may want to travel, pay off student loans, and find a nice home, but young professionals should try to get in the habit of putting money aside each month. The earlier you start to build your retirement savings, the more compound interest you will accumulate with time.” 

A solid starting number to strive for would be 10-15% of one’s annual income in your twenties, she suggests. “But if you can’t meet this goal immediately, don’t despair,” she said. “Just start as soon as you can.”  Other targets to establish as early as possible also include being cognizant of the expenses that ought to be settled leading into retirement years and establishing a financial plan to position one’s self accordingly, said Cindy Diccianni, RN, ChFC, CLTC, AEP, an accredited estate planner through the American College of Financial Services. “Targets include paying off primary mortgages and getting all expenses such as credit cards and loans paid down so that the ‘gotta-have’ number is controlled,” said Diccianni, who is also founder and owner of Diccianni Financial Group Inc., East Norriton, PA. These “gotta have” dollars are monies that are needed each month to pay those bills that will be present and therefore allow the retiree to live without revolving debt. She also suggests the saving of 10-15% of earnings and assuming that an emergency fund totaling 6-12 months of savings will be available in an account.

AGGRESSIVE VS. CONSERVATIVE?
The mindset of participating in an employer-sponsored, tax-deferred retirement savings program is likely to work in one of two ways: one’s earned income is the product of hard work and time spent, and so aggressively investing is seen as too great a risk, or, since these funds never clear into one’s bank account, it is, therefore “found money” available for more risk-taking and the chance at a bigger future payout. There is not a one-size-fits-all blueprint that exists, but the general suggested approach is taking an aggressive nature at the youngest age possible, even when considering that the ebbs and flows of the economy can dip into some unsettling valleys. That doesn’t mean that the conservative saver is a lost cause as he or she ages, however, according to Tabloski, who said that current guidance suggests that maxing out contribution limits is a key consideration. “If you are over 50, you are eligible to make additional catch-up contributions,” she said. The reality here might be that one will need to consider deferring retirement and the acceptance of Social Security benefits until a later age. “Early retirement benefits continue to be available at age 62, but they are greatly reduced, and if you are still working you can only earn up to $17,640 per year,” she said. “Delaying Social Security benefits until age 70 results in an increase of 132% of your benefit. There is no increased benefit for delaying Social Security benefits after age 70.” There are likely benefits for those who have been traditionally aggressive with their retirement investing to become more conservative as time goes on and retirement nears, Tabloski said. “Buying riskier stock in your twenties and thirties may yield bigger returns, but may result in losses, and as we approach retirement we should consider transitioning to lower-risk stocks with 40-50% of the portfolio in bonds,” she continued. “For a retirement that may last decades, it is a good idea to retain a decent percentage of stocks that may offer healthy yields on investment. It is often recommended to build up to 80% of your portfolio with stocks when retirement is 20 or more years away.”   

To put things into perspective, Diccianni urges professionals to view their retirement funding not just as an investment but as one of the more costly expenditures that they will have in their lifetime. “The most expensive thing that people will buy is a 30-plus-year retirement,” she said. “You cannot retire without money to support yourself, so saving as much as you can, putting off retirement, and holding off taking Social Security are all key things to do.

There are numerous types of retirement accounts to consider, including 401(k), 403(b), IRAs, and health savings accounts (specifically for health-related needs in retirement), but one constant remains to max out that opportunity, or come as close to maxing out as possible and to always rollover funds if/when changing employers, Diccianni said. “Always take advantage of the plan 100 percent when you can or increase your commitments 2-3 percent per year,” she continued. “I always make sure my clients roll assets to an IRA when they leave a company so that they don’t lose track of the investments. Never leave money behind. You should be in growth investments, and in a company plan the investments will grow.” 

COMMON RETIREMENT MISCONCEPTIONS

At some point, the most influential planning for retirement may be the avoidance of the most problematic fallacies that cause future financial strain. Misconceptions that typically impact professionals include

  • The assumption that there’s no need to save now because opportunities to work will always exist
  • There won’t be a need to use all of one’s saved retirement funds
  • Rising stock rates will result in big gains on small amounts of money invested
  • Social Security will recover
  • Budgeting takes too much time
  • Not working long enough and saving too little over that time
  • The belief that “I deserve to buy what I want now because I work hard.”

“Often, people retire because of poor health, company downsizing, or other unplanned life events,” said Tabloski. “But we may not always be able to work, or to work to the extent that we do when we’re younger.” Even with the benefit of good health and job security, Tabloski urges providers to honestly ask themselves if they really want to be working through their seventies, because that’s what the calculations may add up to if financial security is not established. “It’s impossible to anticipate all that will happen in decades of retirement,” she continued. “Healthcare costs, travel expenses, relocation costs, family obligations, and other unplanned life events may all occur. Our situations probably will change as we grow older and most retirees will need additional savings to enjoy the retirement they envision.” 

SEEKING FINANCIAL ASSISTANCE
Much like saving itself, Diccianni and Tabloski suggest that working with a financial advisor can never start too soon. Researching and seeking certified advisors who charge a fee should provide beneficial assistance. “Fee-based advisors advocate for the clients and have their best interests at heart,” said Diccianni, who notes that a reputable advisor should charge an asset under management, which measures the total market value of all the financial assets, of 1-1.25%. Fees may be payable at a flat rate, annually, by the hour, or by a rate commensurate with profits earned. Costs may also vary by region and/or fee structure. Tabloski also suggests asking any advisor for a copy of his/her code of ethics. “Look for fiduciary language to confirm that your planner is required to look after your interests,” she said. “Be sure to get a few estimates before making your decision and consult the National Association of Financial Planners for resources and guidance. Your future self will thank you for any assistance you seek.”

Social Security Benefit Planner
Working professionals who want to calculate their expected rate of Social Security benefits to assist with budgeting for their future retirement can do so online by visiting www.ssa.gov/planners/retire/ageincrease.html

References 

  1. Davidson K. Social security costs to exceed income in 2020, trustees say. Wall Street Journal. 2019. Accessed online: www.wsj.com/articles/social-security-trust-fund-to-be-depleted-in-2035-trustees-say-11555946113
  2. Brock C. How your parents got social security all wrong. The Journal Times. 2019. Accessed online: https://journaltimes.com/business/investment/personal-finance/how-your-parents-got-social-security-all-wrong/article_f135ea8e-e5c7-5bac-a9c3-060e7be1d694.html
  3. NASI. What is the social security retirement age? 2017. Accessed online: www.nasi.org/learn/socialsecurity/retirement-age

 

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