Who will you be when you retire? Retirement is about having control of your time. Maybe it means earning money doing something you love, at a pace that is comfortable for you. Maybe it is helping a charitable organization, or volunteering your time for activities you care about. Spending time with family and friends and sprinkling in some travel appeals to many. Whatever you aspire to be in the next phase of life, a sound financial plan for getting there will help ensure your ability to choose. There are some key pieces of the puzzle that will help ensure retirement success. The earlier you start building a retirement nest egg the easier it will be.
I have identified five primary preparation stages for planning. In the last newsletter we looked at how to start preparing for retirement in the “Early Stage” of your adult life. In the Early Stage it is important to minimize debt, establish an emergency savings fund, and seek opportunities to begin pre-tax and tax deferred savings through an employer retirement plan and/or IRA.
I will address the “Busy Stage” this quarter.
Busy Stage
The Busy Stage is when we have become more established within our profession, maybe have a family to take care of, and are busy with work and activities. There is no set age for each stage of planning. Everyone is different, and each stage will come in its own time for all.
Debt—Minimizing debt should always be a priority. The goal at this stage should be to eliminate all debt aside from an affordable home mortgage.
- Home Mortgage—Keep your home affordable. A home should be one of your first large, long-term investments. With relatively low interest rates mortgage debt is a solid investment in your future.
- Car—At this point using cash to purchase a car should be a priority versus taking out an auto loan. It is a common myth that everyone has auto debt. Eliminating auto debt is a huge positive step on the way to more cash each month to put toward saving or other discretionary items.
Saving—The Busy Stage represents one of the best opportunities for savings throughout our lives.
- Emergency Fund—Seek to set aside cash to cover 3-6 months of expenses in a safe savings account, up from the 1-2 months recommended for the Early Stage.
- Employer Retirement Account—In additional to maximizing the match at your employer, seek to invest the maximum allowed in your pre-tax retirement plan options. For traditional 401(k) and 401(a) accounts the maximum is $18,000 for 2015-2017. If you are over 50 years old additional funds may be saved. If you get in this habit early you will not even notice the cash flow difference.
- IRA and Taxable Investment Accounts—If you have changed jobs it is important to review additional options for retirement accounts. A rollover IRA may offer some cost savings and greater flexibility than your previous employer’s retirement plan. You may also be in a position to save more than can be tucked away in retirement plans. A taxable investment account can offer flexibility, accessibility and opportunity. Please consult with Schenkelberg Investments regarding these options.
- 529 Plans—Many states offer nice tax deductions for 529 plan contributions for education funding. Consider this option carefully; each state has different options. Always make sure you are taking care of your own retirement before worrying about your children’s college education.
Insurance—With a family, insurance is a vital piece of financial security.
- Life Insurance—Supporting a spouse and children in the event of an unexpected tragedy is important. A low-cost term life policy can often meet the needs of your family. Try to avoid higher cost insurance investment vehicles. Consult with an insurance representative regarding the best options.
- Disability Insurance—For individuals who are the primary wage-earner, the inability to work could be devastating to a family. Employers often offer a low-cost option for this coverage.
Schenkelberg Investments is here to help you put the pieces together. Please call or email to discuss options at 402.658.2152, jj@schenkelberg.investments.