Monthly Investment Message: August 2017

Personal Finance September 04, 2017 Print Friendly and PDF

Barbara O’Neill, Extension Specialist in Financial Resource Management

Rutgers Cooperative Extension

oneill@aesop.rutgers.edu

August 2017

Retirement Planning is a 40-Year Journey

The retirement planning process has been described as a “40 (or more) year journey” from the start of someone’s working life in their 20s through retirement in their 60s (or beyond). However, it is actually much longer, if you consider how long someone can live during retirement. Unlike shorter-term financial planning goals like buying a car, a house, or saving for a child’s education, retirement planning can literally take place for seven or eight decades from the start to the end of someone’s adult life (e.g., 20s through 80s or 90s).

 

Workplace retirement planning programs often target a wide swath of worker demographics ranging from recent college graduates in their 20s to soon-to-retire employees in their 50s, 60s, and beyond. Financial objectives for each group are different, however. The focus for young adults is saving early and often, preferably with automated retirement savings plan deposits. Other key topics for young adults are repaying student loan debt and basic investing principles to make informed retirement plan investment decisions.

 

For older workers, the focus of financial education efforts tends to shift to retirement income catch-up strategies, the question of “Have I saved enough money?” the mechanics of applying for retirement income benefits (e.g., Social Security and/or a pension) and making withdrawals from tax-deferred savings plans to comply with IRS required minimum distribution (RMD) regulations and to avoid outliving one’s assets. Older late savers are also often seeking creative options to stretch their retirement savings throughout their lifetime.

 

Regardless of someone’s stage in life and where they are on their retirement planning journey, five retirement planning principles are timeless and apply to everyone:

 

  • First, Get Started- Set a goal and make a savings plan. Determine your retirement savings need with a Ballpark Estimate calculation (see below) and then develop an action plan to save the required amount.

     

  • Save Early and Often- Set up automatic savings plans through an employer and/or investment company so that deposits are made regularly (e.g., 5% of income every payday), regardless of stock market conditions.

     

  •  Invest Part of a Raise- When you get a raise, bonus, freelance work pay, or other increase in income, invest half of it. If your employer offers “auto escalation,” sign up so that raises take effect automatically.

 

  • Don’t Delay Any Further- It’s never too late to start investing for retirement. If you haven’t saved anything yet for retirement, the best day to get started is today.

 

  • Stay Educated About Retirement Planning- Changes to Social Security rules and retirement savings plans are not unusual so it is important to stay up to date via financial publications, media, social media, etc.

     

    There are many available websites that can help people with personalized retirement planning calculations and other planning tasks related to retirement planning.  Below are three examples:

     

    Ballpark Estimate (American Savings Education Council): http://www.choosetosave.org/ballpark/ 

    Provides a rough estimate of the amount of money that someone needs to save for retirement.

     

    Compound Interest Calculator: http://www.moneychimp.com/calculator/compound_interest_calculator.htm

    Shows what an investment deposit will grow to at a specific interest rate over a specific number of years.

     

    Life Expectancy Calculator: http://www.northwesternmutual.com/learning-center/the-longevity-game.aspx (The Longevity Game, Northwestern Mutual Insurance)

    Provides an estimated life expectancy based on personal health and lifestyle factors.

 

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This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.