How often do you think about retirement? Is it when you look at your paycheck to see your pretax IRA deduction or when you receive your quarterly statements? Most prospective clients we speak with don’t think about it until the market goes down along with the value of their retirement account. Your IRA should not be your only “wealth” financial vehicle and your IRA should not consist of just Growth funds either. There should be a lot of consideration that goes into building wealth, funding your retirement and growing it over time.
Many people are not sure when to begin saving for retirement or whether or not they will have enough to retire in order to sustain the standard of living they are used to. People fret about this as they get older, especially when they get into their 50’s and then panic when they reach their 60’s. This could all be avoided through financial planning and a prudent approach to saving and contributing to your retirement fund.
If your employer has a 401k-type plan, take advantage of it and depending on your annual earnings, also consider an Individual Roth IRA. Maximize your retirement funds depending on what you can afford to save. If your employer has a matching program, you should maximize your contribution if you can afford it. If they are giving you money to save for retirement, take it and maximize your annual contribution.
When considering on how to invest your retirement contribution make sure you diversify the funds that are available to you. Consider current market and economic conditions in addition to your current age and how many more years you have to save and contribute to your retirement fund. Before age 45, you should consider at least 50% of your retirement in Growth funds and the balance in Income and Bond funds. Between ages 45 – 55, Growth funds should make up 40% – 50%, Bond funds 25% and Income funds 25% – 35%. After age 55, if you have been saving for at least 25 years then 25 – 35%% should be in Growth funds, 40% – 50% in Bond funds and 25% – 35% in Income funds. Of course these simple fund breakouts are just a guideline and do not take market or economic conditions into consideration. If the market has gone through a down period for a while, that is a good time to add more to your contribution.
After age 50, there is a $1,000 per year catch provision for your retirement, take advantage of that. You also need to look at the past performance of each of the funds and even try and find out the management team that is managing and making the decisions on the investments in the fund. Monitor the fund over time when there are management changes and/or significant asset turnover in the fund, consider looking at other funds. When new money managers come in they may not have the track record the previous money managers had and you may want to consider different funds with past performance you prefer. Depending on the overall value of your retirement fund, you may want to consider multiple funds within each category (i.e. Growth, Income, Bond, Money Market, etc.). This will help diversify your IRA portfolio and cast a wider net with a range of different fund managers.
So now that you have been saving retirement funds over time and making adjustments to your funds when necessary, now you need to figure out how much you need for retirement. There are many “Retirement Calculators” out there. You can get a free one from our web site. Once you figure out how much you need for retirement and calculate in CPI (inflation) over your accumulation years, then you will know if you need to add larger contributions to your retirement. If you are maxed out, then look to other investment vehicles to build wealth. Depending on your tax bracket and age, you may want to consider higher yielding products or growth products with a higher beta to look for a greater chance at capital gains during a bullish trending market.
So our original question, “Can I Afford To Retire?”. Only you can answer it, but most people can use some help and guidance to make sure they are on the right path and stay on the right path as market and economic conditions change over time. Remember, take the following into consideration when you need to determine if you have enough to retire; Life stage, age, how much are you starting with now, how much are you contributing on an annual basis, market and economic conditions.
If you aren’t sure if you have enough or if your current portfolio and retirement fund is diversified properly, you can do something about it, reach out to a fee-based Financial Advisor. Since they have suitability requirements for their clients and a fiduciary duty, you can feel confident that the plan you jointly put together has taken your entire situation into consideration.
About the Author
Ronald Lang is the Principal at Atlas Wealth Management, LLC focused on working with clients to meet and exceed their financial goals through suitability and fiduciary requirements of their clients. Mr. Lang writes several articles on wealth management to educate and provide valuable information to both clients and non-clients. He is a frequent content contributor to the financial publication Investor’s Business Daily (IBD – www.investors.com) He believes that financial education is one of the most important skills you can have in life, but very few people pay attention to it until it’s too late. Mr. Lang also does several speaking events and volunteers his time to youth sports.
You may contact him at Ron.Lang@AtlasBuildsWealth.com or (888)403-9400.