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Ensuring a Comfortable Retirement

You got your first job! Congratulations! Is it too early to start to plan for retirement?

Let’s join John as he meets a friend who graduated from college a couple of years ahead of him, Laura, who started her career as a financial advisor.

              “Thanks, Laura. It was nice of you to reach out. I understand you decided to specialize in retirement planning.”

              “I love my job. Who wouldn’t enjoy helping people plan for their retirement?”

               “Sounds great but have a few years before I can begin to plan.”

              “Au contraire, buddy! Now that you landed your first job, now is the best time to start to plan.”

Laura is right. Your money needs to grow as you age. It may seem overwhelming to start once you land your first job but Laura lays out some very basic facts for John to consider. Starting to save requires a degree of discipline so let’s see how she gets John to start down the right path.

              “Let me offer you some incentive. Saving even small amounts pays off in several ways. Time is a crucial factor in growing your money. Naturally, the earlier you start, the better. You have a silent helper, too.”

                “A ‘silent helper'? What’s that?"

              “Interest on savings and investments! Over time, there’s that word ‘time’ again, the re-investment of interest, dividends, and capital gains can grow your money while you are busy earning your paychecks. The earlier you begin, the longer the time period, and the more likely you will be able to see a more secure future retirement. In one of my training classes, they showed us an article. David Bach is a self-made millionaire but the thing that impressed me is the chart he used. It illustrated one person who started to invest for 8 years: $2,000 annually from 19-27. Then, $0. The other person started to invest $2,000 for 39 years from 27-65. All things being equal, the one who started earlier wound up with $200,00 more for his retirement. Another silent helper may be an employer ‘match’ for saving in a company program, such as a 401K. That’s something to investigate.”

                    “But Laura, what if I don’t have that much money to invest? Actually, I’m not sure how to figure out just how much money I have for investing.”   

This question is often the reason people don’t start to save when they get their first job. But Laura knows that the flip side of saving for retirement requires establishing a budget. There are lots of different ways to budget but it is essential to get into a habit of budgeting, especially after landing your first job. If you don’t understand the balance of money coming in and money going out, savings for retirement, an emergency fund, fun trips, etc. is far more challenging.

                “John, let me offer you some simple things to consider. You will decide which manner of budgeting suits your personal style. You can use an online app. That way keeping track of income and spending becomes efficient. There are several ways you can approach it. You can create specific expenses, such as rent, car payments, food, etc. Or you can create categories, such as home, gifts, phone, entertainment, internet, etc. Or, I can help you distinguish between ‘must haves’ and ‘nice to haves’. Then we create percentage groupings, such as 60% for ‘must pay’/ 20% for saving & investments/ 20% for ‘wants'. We can tailor it to you.”

Laura has John off to a good start. According to the Society of Actuaries Retirement Literary Series, here are some further details that she can use to help John get his plan in place.

  • Create a spending plan: Track your expenses and use this information to create a plan for spending money. Your plan should account for monthly and non-monthly expenses.
  • Build an emergency fund: Deposit funds automatically into a savings account until you have at least 3-6 months of expenses saved.
  • Pay off debts: Prioritize paying off high-interest debt (generally debt with interest rates greater than 4-6%) first.
  • Save for retirement: Contribute as much as you can afford to a workplace retirement plan, IRA, or HSA. Save at least enough to get the full company match, if available.
  • Invest for the long haul: Take advantage of your time horizon by investing more of your savings in long-term instruments (e.g., stocks, bonds, real estate).

 

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About the Organizations in the Financial Security Alliance

ABOUT ILTCI: The Intercompany Long-Term Care Insurance Conference Association, Inc. (ILTCI) is a public, non-profit, charitable, scientific, educational tax-exempt public benefit corporation. Our Annual Conference and multiple initiatives help a diverse group of Americans grappling each day with the impacts of our aging society. To learn more, visit www.iltic.org.

ABOUT INTERNATIONAL DI SOCIETY (IDIS) is an organization whose members dedicate themselves to providing disability insurance to individuals, families, business owners, and employers to afford financial security in the event that an unforeseen disability occurs. We are devoted to growing consumer awareness and enhancing the disability insurance industry by expanding our members' resources, remaining current on industry trends, and providing a community for producers, distributors, underwriters, and carriers to establish relationships and drive innovation.

ABOUT LIFE HAPPENS: Life Happens is a nonprofit organization dedicated to helping consumers take personal financial responsibility through the ownership of life insurance and related products. The organization does not endorse any product, company, or insurance advisor. Since its inception in 1994, Life Happens has provided the highest quality, independent and objective information for people seeking help with their insurance-buying decisions. To learn more, visit www.lifehappens.org.

ABOUT NAIFA: Founded in 1890, NAIFA is the oldest, largest, and most prestigious association representing the interests of financial services professionals from every Congressional district in the United States. Our mission – to advocate for a positive legislative and regulatory environment, enhance business and professional skills, and promote the ethical conduct of its members – is the reason NAIFA has consistently and resoundingly stood up for financial services professionals and called upon members to grow their knowledge while following the highest ethical standards in the industry. Visit NAIFA at www.naifa.org.

ABOUT NAIFA's LECP: NAIFA's Limited & Extended Care Planning Center empowers professionals to network with solution and service providers to share best practices, directly access subject matter experts, research, training, and resources, and provide thought leadership so we may continue to address the changing needs of the market. To learn more, visit www.lecp.naifa.org

ABOUT PROTECTING EVERY FUTURE: Protecting Every Future is a network of diverse voices and people who believe we deserve common-sense policies that protect and strengthen the financial futures of all Americans. We make it our mission to give advocates a platform to speak their minds about financial security to all levels of government. We promote the importance of planning for a reliable financial future; encourage policymakers to take actions that protect retirement benefits and fight for reasonable policies that empower financial security for all Americans. Visit everyfuture.org.