Helping clients achieve their retirement goals is one of the most important services Grubman Wealth Management provides. While every client’s situation is unique, there are common life events that can impact retirement plans. How do you think we at Grubman would answer the question about when to get serious about retirement planning?
a) When I win the lottery
b) When I start my first real job
c) When my kids are looking at colleges
d) When I’m deciding about buying a new home
e) 5 years before I retire
f) all of the above, EXCEPT (a)
First, we can scratch off (a) when I win the lottery. We’ll cross that bridge when we come to it, because it’s not going to happen—or at least, not until after you get hit by lightning, become president, or get killed by a vending machine, all of which are more likely than winning a major lottery prize.
How about (b) when I start my first real job? “Saving early, saving often” may be the single most important step you can take toward achieving your late-in-life financial goals. Here’s a simple, factual scenario:
- Assuming a modest 6% annual return,
- Saving $500 per month starting at age 25,
- You will have $1,000,000 by the time you are 65.
But if you start 10 years later? You’ll need to save nearly $1,000 per month to achieve the same result.
Contributing to your employer’s retirement plan is probably not going to fully fund your retirement, so you will need to save both in tax-advantaged retirement accounts and in regular brokerage accounts. You may not have the cash flow when you first start working to maximize your tax-advantaged retirement contributions, never mind save in addition to those contributions. But we recommend setting up a small automatic deposit to a non-retirement savings account—even $25 per week (easy if you break your daily Starbucks habit). You’ll be amazed how this small weekly contribution adds up, and as your earnings grow, you can increase the amount.
If you have children, their college decision can affect your retirement planning—not just whether they go, and for how long, but where they choose to attend. Right now the most expensive colleges cost, in total, over $70,000 a year. The University of California, on the other hand, has a total annual cost of $35,000. The savings over four years for the latter choice, invested to earn a 6% annual return, would grow to over $350,000 over 15 years.
Many people feel conflicted about prioritizing their own retirement over their children’s education. But if you think about this in terms of the future, secure retirement funding ensures that your adult children will not have to worry about helping you financially in your old age. So we also encourage you to think about your own retirement (c) when my kids are looking at colleges.
Similarly, we’ve found that (d) when I’m deciding about buying a new home is an important time to update your retirement plan. Homes are particularly impactful to the success of a plan—not just due to the up-front cost of buying, but because property taxes and other home-related expenses are usually tied to the size and/or purchase price of the home. Upgrading from a home purchased 15 years ago for $500,000 to a new home for $1,250,000 will increase your property taxes from about $7,700 to $14,375 per year (assuming property tax @ 1.15% of purchase price).
We also advocate thinking seriously about your retirement plan (e) five years before retirement. If you’ve started saving early and often, have made conscious and considered choices about how to spend your money, and don’t consider winning the lottery to be a viable retirement plan, then five years before you retire will give you time to make any necessary adjustments.
So, our answer is (f) all of the above, except counting on winning the lottery.
If, at the end of this post, you’re left thinking, “Drat, I’m really behind the eight ball with my retirement planning,” then our next post will be just for you. Stay tuned and sign up for email updates to find out when we post again!