Achieving your financial goals doesn’t just happen by itself. It takes a plan, implementing the plan, adhering to the plan, and when necessary, adjusting the plan

Simply put, failing to plan is planning to fail. Don’t plan to fail!

According to the Department of Labor...

● Only 40% of Americans have calculated how much they need to save for retirement.
● In 2018, almost 30% of private industry workers with access to a 401(k) plan or something similar did not participate.
● The average American spends roughly 20 years in retirement

Nearly everyone will receive Social Security, but Social Security won’t pay all the bills.

1. Regularly saving is critical. Once you begin an automatic payroll deduction into a retirement account, you won’t miss it. I promise. Let me tell you a short story about my own experience. When I first started saving in my company’s 401(k), my initial goal was to put 10% of pretax income in my 401(k).

But that seemed like a mighty big chunk of cash, at least in the beginning. So, I started with 4%, raised it to 7% then bumped it up to 10%. Taking baby steps was much easier than attempting to summit the peak in one leap.

I can’t overly emphasize the importance of capturing your entire company’s match. It’s free money. Don’t leave free cash with your employer.

2. Start as early as you can. It won’t be long before my daughter graduates from college. I'm sure, for her, retirement seems light years away. That's the case for many young people. 

But we all know the magic of compounding. The savings we socked away when we were younger has paid big dividends.

​Let’s illustrate by way of example. Tom is 28 years old and plans to save $500/month or $6,000 per year until he retires at 65. With an annual return of 7% (assuming annual compounding), Tom will have amassed $962,024 when he turns 65 years old. Total contributions: $222,000.

Kate decides to put away the same amount. Kate is 22 years old and will save for 43 years. While her time to contribute is only an additional six years, her decision to start early is rewarded with a portfolio of $1,486,659. Total contributions: $258,000.

Because Kate started sooner, the additional $36,000 amounted to an additional $524,635! (Source: Investor.gov Investment Compound Calculator]] Calculations assume a tax-deferred account.)

3. What plan best fits my need? That question will depend on your personal circumstances. For many, your company’s 401(k) is tailor-made to save for retirement. This is especially true if your firm has a matching contribution. 

Whether to fund a traditional IRA or a Roth IRA depends on many factors, including your marginal tax rate today and expected rate in retirement.  

A Roth offers tax advantages if you qualify. Generally speaking, withdrawals from a Roth IRA are tax-free in retirement if you are age 59½ or older and have held the account for five years. But you won’t capture a tax deduction on contributions. 

Current tax law does not require minimum distributions, which can be a big advantage as you travel through retirement.

A Roth may also be advantageous if you do not believe your marginal tax rate will fall much in retirement or if you have outside assets that limit your need to withdraw on your retirement savings.

4. How much will I need at retirement? Again, much will depend on your individual circumstances. Your retirement expenses and lifestyle will dictate your portfolio needs.

An old rule of thumb that you’ll need 70% of pre-retirement income may not suffice for many. For example, will you still be paying on a mortgage after you retire? Or, do you plan to downsize, which may reduce or eliminate monthly mortgage outlays?

One approach some folks consider is the 4% rule. It’s relatively simple. Withdraw 4% of your total investments in the first year and adjust each year for inflation. Keep in mind, however, that this is a rigid rule. It assumes a 30-year time horizon and minimizes the risk of running out of money.

Depending on Social Security and any pension you may have, a more generous “allowance” from your savings may work too.

5. How do I find the right mix of investments? What worked when you were 30 years old probably isn’t appropriate today.

While my advice will vary from investor to investor, Ican offer broad guidelines. Furthermore, retirement may be broken into different stages, which may require adjustments to the plan.

Some investors decide its best to take a very conservative approach. You know, “I can’t lose what I’ve accumulated because I don’t have time to recoup losses.” But that has its drawbacks. For starters, you don’t want to outlast your money. Equities, which have historically offered more robust returns, may still be an important part of an investment strategy. 

Others may be swept up by what might be called “the current of the day.” Stocks have surged, which may encourage investors to load up on risk. However, a comprehensive financial plan helps remove the emotional component that can creep into decisions.

6. I’ve saved all my life. How do I begin withdrawing from my savings? It’s a complete shift in the paradigm. No longer are you socking away a percentage of each paycheck. Instead, you are living off your savings.

First, if you are required to take a minimum distribution from a tax deferred account, take it. 

Next, consider interest, dividends and capital gains distributions from taxable investments, which continues to tax shelter assets in retirement accounts.

If additional funds are needed, consider withdrawals from your IRA or other tax-deferred accounts. If you are in high tax bracket, you may consider pulling from your Roth. Those in a lower tax bracket could leave the Roth alone and take funds from their traditional IRA

Bottom line

Let me reiterate that many of these principles are simply guidelines. One size does not fit all. Plans we suggest are tailored to one’s specific needs and goals. If you have any questions, I would be happy share our recommendations. I'm simply a phone call or email away!

I trust you’ve found this review to be helpful and educational. 

I share a variety of issues with you, and I have an open-door policy. If you have questions or concerns, let’s have a conversation. That’s what I’m here for.

As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.

Election 2020 – a nail-biter

For the nation, 2020 has been one of the most difficult years in memory. We are grappling with Covid and its fallout, economic upheaval, riots, looting, wildfires, hurricanes, a presidential election, and a polarized electorate.

Despite this year’s difficulties, a strong economic recovery, record low interest rates, and an aggressive stance by the Federal Reserve have helped the major market indexes rebound from March’s steep sell-off.

But where do we go from here? What’s in store over the next four years? If we view the future through the lens of public or tax policy, visibility is extremely limited. Who will reside in the White House has yet to be determined.

If we narrow our scope and review the landscape through the lens of the investor and the market, I believe we can look to history for guidance and at least obtain some degree of clarity.

First, let me say this. No one has a crystal ball. Any stock market forecast that you may hear from analysts is simply an educated guess. They may get lucky for the right or the wrong reason. Or analysts might miss the mark by a wide margin. As we already know, even the smartest folks in the room don’t know the future.

Besides, we already know that consistently timing the market is nearly impossible.

However, over a longer period, we recognize that stocks have historically had an upward bias.

“Since 1932, the S&P 500 Index has gained an aggregate of 710% under Democratic presidents and 375% under Republican presidents. But staying invested the entire time would have earned 47,000%,” according to the Schwab Center for Financial Research

What’s that mean? If you shunned stocks when either a Republican or Democrat was president, you missed out on the lion’s share of the market’s gain.

If we take the last 12 years into consideration, a similar pattern emerges. Those who pulled out of stocks after the 2008 election because they were discouraged by the results lost out on a significant stock market rally over the ensuing eight-year period.

Anyone discouraged by the 2016 results also failed to participate in a significant stock market rally.

A disputed election could create short-term uncertainty. Yet, emotional decisions made outside the boundaries of a well-crafted financial plan have rarely been profitable over a longer period.

Longer term, the economic environment, Federal Reserve policy and interest rates, corporate profits, and inflation trends have historically had the biggest impact on the broader market.

Keeping perspective

The country will remain divided after the final tally is known. But let’s not forget that the U.S. remains the world’s largest economy; it has the deepest and most transparent capital markets, and innovation isn’t likely to end.

We will face challenges in the days and years ahead. We have always faced challenges. But we are resilient, and I continue to be optimistic.

I trust you’ve found this review to be helpful and educational. If you have questions or concerns, let’s have a conversation. That’s what I’m here for. As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.