Friday, April 21, 2017

Finance Friday - Thinking About Saving for Retirement

Happy Friday, everyone.  Today I'm kicking off a new post series called "Finance Friday." As many of you know, I work in financial services and am a CFA Charterholder (CFA stands for Chartered Financial Analyst). So finances and financial management are kind of my thing.  That said, I recognize that financial topics like saving for retirement and selecting investments and such are topics that others have varying levels of interest in and knowledge about.

When something intimidates you, the natural response is to ignore it. But your financial health is such an important thing to think about because we all have a goal to retire at some point and enjoy the fruits of our labor. And while there are programs like social security that should enable us to leave the workforce and retire, there are varying levels of confidence that social security will remain funded long enough to provide retirement income for Americans, especially those in my generation and younger.

According to this article from CNN, the trusts that funds social security income will be depleted by 2034. That does not mean that social security will go away in 2034, but social security benefits will be cut by about 20% as the payments to beneficiaries will need to be funded by incoming tax money (right now there are assets in a trust that earn income to supplement the amount of social security taxes that the government collects). I will be 53 years old in 2034.  I won't even be at the age to receive social security benefits. So if the benefits are being cut by 20% at that point, how much further will they be cut by the time I start to receive social security in 2048? [full retirement age is 67 for those born after 1960 - you can start to collect at 62 but the amount of your benefit is reduced by 30% if you start to collect at age 62.]

I recently received an article at work (that I can't share because it requires a paid subscription, but this Huffington Post article from last summer says that same thing) that said nearly half of baby boomers have no money saved for retirement and intend to rely on social security income in their retirement years. Granted, the baby boomers that are entering their retirement years likely never feared that social security income wouldn't be around to provide retirement income. But in my opinion, my generation - generation X - and millennials can not assume that we will receive social security benefits when we retire.

Maybe there will be some sort of large scale reform that will increase the likelihood that we'll receive sufficient social security income, but that's a big maybe, in my opinion. I know this is probably scary for many to read and think about, but it's something we need to be aware of and plan for.  Granted, if you happen to work for a company or industry that provides a pension then this is less of a concern for you. But nonetheless, ignoring thoughts and conversations about how to plan for retirement is akin to never going to the doctor because you don't want to know what the state of your health is. Because just like your physical health, your financial health is going to matter in the long run.

Again, I want to stress that I understand that thinking about this might make some of you really uncomfortable and quite anxious. But isn't it better to think about it and do something about it now when you potentially have 30+ years to put a plan into action versus thinking about it when you are approaching your retirement?  The good news is that time is literally money when it comes to investing (a topic I'll be touching on in my next post in this series). Yes, there will be times when your investments decline in value, but over time, those investments will grow.

This first post in my "Finance Friday" post series is more of an 'ideas' post that is meant to get you thinking about your retirement. But I do want to leave you with some 'actions' to take.

Finance Friday Actions

1. Consider working with a financial advisor - I personally do not work with a financial advisor because between Phil and I, we have the knowledge and resources to manage our assets and prepare for retirement. But I would say we are the exception, not the norm. If thoughts of retirement freak you out and make your stomach hurt, I think a great first step is to meet with a financial advisor. They will have the tools and resources to talk about preparing for retirement and if they are good at their job, they will do so in a manner that will make sense/not intimidate you. If you have 401k, IRA, and other investment accounts, they should be able to run an analysis on how much income those retirement accounts will provide. They can factor in social security income, or they can exclude it to give you a 'worst case scenario'. Your company may even provide a financial advisor as part of their benefit package. If you aren't sure, just ask your HR department.

2.  Set your 401k contribution to your company's matching rate, or greater - Most companies provide a 401k match as part of their benefit package. It's usually in the range of 3% to 6%. At a minimum, you should set your contribution to the % that your company matches - otherwise you are leaving free money on the table.

This post is already super lengthy so I will stop here. Since this is a new post series for me, please let me know if you have any feedback or if there are topics you'd like me to discuss in the future. My goal is to post something at least once a month on this topic.  And if I ever post something that you don't understand, you can always email me at lisasyarns at gmail dot com. I know this is cheesy, but knowledge is power, so the more you can educate yourself on finances and preparing for retirement, the better.  My goal is to empower everyone to take more ownership in making sure their financial health is in tip top shape!

Finance Friday Question:  Have you given much thought to saving for retirement?

Disclaimer:  The thoughts in this post are my own thoughts and are not meant to be taken as investment advice. I have no fiduciary responsibility to anyone that reads this post. Additionally, my comments are US-centric; retirement benefits vary from country to country.


Charbelle said...

I'm so glad you are doing this!!!! I started contributing to a 401K with my first Insurance job in 2003 but in 2007 cashed it out, but had started another one. That one still exists, but I can't really tell you how it works and it was a private IRA type thing I think. Then at the big company I worked at for 2009-2015 I had a 401K and I need to roll that one into my current one but I've not done it yet. Honestly because it's confusing to me and like you said, it's easier to ignore. I KNOW this is bad. I just feel like the money is sitting there so it's there and once my name changes I'll handle it at that point and just do everything at the same time. GAH!!!! I completely acknowledge the necessity of funding retirement but I'm so not good at handling the logistics of moving stuff around and finding out the correct people to contact!

Kyria @ Travel Spot said...

Obviously, you are preaching to the choir here! When I got my first real job (one with a 401k option) my parent's friend told me exactly what you just stated: at least contribute the % that your company will match. Many years later, I am so glad I took his advice. It is surprising (and scary) how many people ignore their futures, although it's as easy as filling out one piece of paper to get started!!! I read an article that said that something like 7 out of 10 Americans have less than $1,000 in savings and around 50% of Americans have NO RETIREMENT savings AT ALL!! That is just crazy! I love this type of post; keep them coming! (PS on a side note, do you ever read Mr. Money Mustache?)

Kelly (She Wears a Red Sox Cap) said...

Love this series and this post! In education things work differently but I'm required to put 11% of each paycheck to my retirement. I also have a 403B which is not matched and I don't contribute a ton to it.
On the subject of a financial advisor the reason I have not seen one is that I'm intimidated by the people who try to sell you things while advising you. I think what I really need to do is sit down with my dad at some point and figure it all out. I think we have a lot organized but so much is in hold right now with my lack of salary :)

Marlys said...

Well, I am at retirement age but still working, but we do draw social security. I can tell you that we could not live as we are used to if we had to rely on that income! I know we would have to sell our home and find an inexpensive apartment so we wouldn't have to pay property taxes, insurance coverage on a home etc. We did find a Financial Advisor about 15 years ago, much too late, but he has been extremely helpful to us. He does not pressure us to buy things we don't need but does give us sound advice. The cost of doing this has easily paid for itself! We now feel confident that we will be financially secure in our retirement, thanks to him!
He also works with our employees and has helped them roll over 401K plans etc - just handles it entirely for them! They appreciate his assistance, too.

Emilie said...

I love this post and that you'll be doing a series! We both have 401ks but paused them for my maternity leave. We really need to look into more options for investing and saving but I honestly don't know where to even start. Its a scary world we live in - it's so hard to set aside money when money is tight for many families. We could save more than we do and adjust our spending habits, but the last few years we've been focusing on lowering our debt more than saving.

missris said...

I love the idea of this series! Yay! You know this is one of my passions :) When Sergio and I started saving for a house down payment about a year ago I actually dialed back my retirement savings because I had been so aggressive with saving for retirement throughout all of my 20s that over 65% of my net worth is tied up in my retirement! I have a Roth IRA that I max out each year and an employer-sponsored retirement plan that they match at 8%. I had been putting in 12% but I'm now at 8% instead so we can aggressively save for a down payment. Hopefully someday I'll be able to afford to own a house and to retire comfortably!

Amber said...

I think it's awesome that you are doing these posts! I'm sure it will be so so helpful for people!! We don't have 401K's in Canada, but I am pretty sure they are basically the same thing as an RRSP. I was super lucky that at my old job they would 5% of my income into an RRSP and I only had to put in 2.5%. I had increased my contribution to 5% as well about 6 months before I left that job. Sadly my new job does not have any kind of pension or RRSP contribution program, however I make a much higher income so I've been able to save a lot more money than I ever have at any other point in my life. In 2016 basically ALL additional money I was saving was focused on a down payment for our new house, but now that we have purchased our house I will start focusing on putting that extra money into RRSP's again as I know how important that is. I also got a rude awakening doing my tax return this year when I didn't have nearly as big of a return as I usually do because I contributed almost nothing to RRSP's in 2016. So I definitely need to remedy that in 2017.

I would love for you to do a post that kind of addresses what we talked about in Chicago a few years ago - about how to be brave and make riskier investments basically! It was only after having that chat with you that I changed some (but not all because I'm still too nervous about it haha) of my RRSP investments into high risk / higher return mutual funds from the low risk / low return GIC's I had locked in!

Carolina John said...

Consider yourself invited to my retirement party in 2040. I'm totally planning for social security to be gone by then and would opt out of the system now if I could. It's designed to be supplemental income for retirees, not a primary source to begin with.

Marisa A. said...

Yes, I am obsessed with saving for retirement. I have seen the baby boomer mistake of depending on social security and do not want that to happen to me. We'd also like to retire early. We've talked about meeting with a financial adviser. I'm certainly no expert, Drew's background is finance so right now we're doing alright but it wouldn't hurt to get an outside expert opinion. Looking forward to more Finance Friday posts!

Abby said...

The population of patients I work with pretty much all live on SSI alone (all >65) and it has been heartbreaking and eye opening to say the least.

This is a great post. Retirement planning is SO vital -- and Ryan and I have put a lot of energy and focus into it the second we entered the work force. We found a great advisor and she makes sure that I meet personally with her as well, which I think is really cool. She said she sees all too often where the man handled all the accounts, and then unfortunately passes away or divorce occurs - and the woman is lost. I know this would not be a problem in your marriage - as you're both obviously very financially savvy. But i will admit that up until 6 months ago i had no clue where our money was 🙈.

Stephany said...

I had to chuckle a little at Kyria's comment because hiiiii, that's me. Eeks. Thinking about retirement scares the crap out of me because I haven't been able to start saving. But my company does match for a 401k, so I need to just bite the bullet and get that done. (I'm now embarrassed that it's taken me so long to ask my HR department about it that I keep putting it off. Sigh.) But I'm mostly focused on paying off my school loans that I haven't been able to think about retirement. And that's the truth about that number of people who don't have $1,000 saved or anything in retirement savings - for some people, money is so tight that giving up even a few dollars for savings/retirement is not possible. (Or we're more focused on paying off school loans... sigh) But I know I can contribute money to a 401k and I need to do it. I'll definitely be talking to my work this week about it!

My grandparents (well, just my grandpa now) have subsisted solely on their social security income and it has made these years of their life so damn difficult. They aren't able to travel or go out to eat or do very much because money is so tight for them. It's sad and it freaks me out because I don't want that to be my reality in 40 years.

Thanks for doing these posts! I am so bad when it comes to finances and I can't wait to read more.

San said...

This is a GREAT series that you started and I am very much looking forward to more posts! Saving for retirement is so important. I am very lucky I never had any student loans to pay off, but I still started kinda late to save for retirement because of the work situation that I was in... I am actively saving now though! More than what my employer matches! :)

Jeanie said...

I think this is a terrific idea. I was lucky -- our U mandated contributions to TIAA CREF and matched. I know now I should have put more in, but I'm pretty comfortable (assuming I don't live till I'm 93!), But when I started working there we didn't have to contribute for the first five years so I paid off student loans instead and then did the minimum for a little till someone smacked me upside the head and explained it to me. I don't think I was TOO badly hurt but would have had much more. All I can say is plan now. You're right about SS dollars in the future.

Lauren @ Sassy Molassy said...

I love this series idea, Lisa! I feel pretty unaware of the what is that, how, what do all these acronyms mean and what should I be doing in terms of saving for retirement. That being said, I haven't put anything into retirement the past two years because there isn't much to put anywhere, but Pete is putting away some and obviously he and I both have our accounts from previous jobs. When I do get a full time job though, I plan to save more aggressively to help catch up so to speak. I too am not banking for social security to be fully funded or existent by retirement age.

Gracie said...

We're just assuming that we won't have social security income, but honestly, it's so little currently that it can almost be totally discounted. I have a pretty good 401k match at Walgreens, and this is available to all employees, but I seriously have to bully some of my employees into taking advantage of it. There's definitely a knowledge gap. I shouldn't have to play HR person at work, but I am constantly championing our benefits or I swear, some of these people would contribute nothing (and not just hourly wage employees: I had a pharmacist who had been out of school for three years and had not even joined our profit sharing plan).

Jolene - EverydayFoodie said...

I love this stuff; it is so important to start planning for retirement early. My job has a defined benefit plan, so a set amount comes off my check each month, and the government contributes about the same, and then after working for 30 years, there is a formula, and I get a check (approx. 55% of what I was making monthly over the average of my career) every month for the rest of my life, with inflation increases. It's a pretty great pension, and since I started at my career at 21, almost full time, I'll be able to retire with full pension at 52.

Christopher's plan is based on what he contributes, and what FedEx contributes (they more than match), but when it runs out, it runs out, so we'll need a plan for how to draw that when the time comes.

We also put away into RRSPs and, throw extra money on our mortgage a few times a year to ensure that we'll be debt free at least five years before I retire.

In Canada, once you turn 65 you also get CPP checks, which average about $1000 a month, and can also receive Old Age Pension depending on your income at the time.

I figure we should be good with what we're doing, but it's still something we're always thinking about, discussing, and looking at. We plan to retire quite simply, and I will likely get some sort of other job in my 50s just for the heck of it. It depends if I feel bored being retired. It might be fun to try being a barista, or serving at a diner, or something I've never done that looks fun!!

I don't understand how some people don't think about planning for their retirement. That's too scary for me.

katielookingforward said...

Love it! I have my 401k, an IRA, and then I'm aware of a fund that was set up by my grandparents (its small, but there). I need to continue my budgeting, right now I can afford my life, and can save for the future, but I could spend a little more wisely.