By David Munn, CFP
While retirement planning may not be a high priority for those who are navigating the financial challenges of their 20’s or 30’s, this is the opportune time to give thought to your long-term future and take action. Following are key steps to take now to avoid the regrets that many face as they approach retirement:
Define Your Retirement Goals
What do you envision your retirement years to be like? Do you dream of traveling, pursuing hobbies, relocating to a different climate, or spending quality time with family? Clearly defining your retirement goals will help you determine how much you need to save and provide motivation to take the necessary steps.
Start Early, Save Regularly
One of the most powerful tools in retirement planning is compound interest. The earlier you start saving, the more time your money has to grow. Automate your savings by setting up automatic transfers from your checking account or paycheck to a retirement account, such as a Roth IRA or 401(k). Even small contributions can make a significant difference over time.
Consider that an 18 year old who invests only $100/mo will accumulate over $1 million by age 65, assuming a 10% annualized rate of return. Of course, $1 million won’t have the same purchasing power in 47 years as it does today, so additional savings may be necessary, but the earlier the savings starts the more there will be.
Invest for Growth
A common mistake young savers make is being too concerned with the short-term volatility–or fluctuation–of their retirement funds, even though retirement may be decades away. This can lead either to a portfolio that is too conservative and won’t provide the necessary growth, or attempts to time the market by jumping in and out of the stock market, which may result in worse outcomes, wasted time, and elevated anxiety levels.
Instead, focus on selecting a diversified portfolio of investments with a level of risk you can stomach and an expected growth rate that will meet your long-term objectives.
Consider a Health Savings Account (HSA)
If eligible, an HSA can be a valuable tool for retirement planning. Contributions are tax-deductible, and the money grows tax-free. HSAs can be used for qualified medical expenses throughout your lifetime, providing flexibility and potential tax benefits, even throughout retirement.
Track your Progress
Every year or two, it is beneficial to review your portfolio, revisit your retirement goals, and evaluate your saving progress. This can help identify if changes need to be made, such as adjusting your savings rate, investment allocation, or the type of retirement account.
This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. This material is not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. Munn Wealth Management, LLC, is registered as an investment adviser (RIA) with the United States Securities and Exchange Commission. Registration as an investment adviser does not imply any certain degree of skill or training. 1323GRE