Happy What's Up Wednesday!
We're back after a busy week of preparations for our 10-year anniversary party! It's hard to believe it's been 10 years since I took the leap of faith and became independent. I'm grateful for the amazing clients, staff, and support that have been with me throughout the years!
Now, let's dive into what I believe can set you up for an enjoyable retirement: financial planning. For the sake of this blog, let’s break it down by generation’s Millennials, Gen X, and Boomers.
Millennials
As a generation born between 1981 and 1996, you've likely started to question: How do I start saving for retirement? Am I saving enough? Am I saving in the right place? What I would advise is this:
- Just start saving
The power of compound interest is on your side! Small consistent investments can add up over time. Take advantage of employer retirement accounts like 401(k) to get a head start. Especially if your company offers a match! If you are not putting in equal to what they match, you’re leaving free money on the table.
- Live a lifestyle that your income can support: Don’t worry about what others are doing
Avoid overspending and prioritize saving! Remember the 50/30/20 rule: 50% of your income for necessities, 30% for discretionary spending, and 20% for savings (and debt repayment if needed).
- Build an Emergency Fund
Save 6-9 months' worth of expenses in an easily accessible account. This fund should cover not just essential expenses (rent, utilities, food, gas, etc.) but also unexpected costs like ER visits, car troubles, out of the ordinary expenses. Having a well-established emergency fund can keep you from having to turn to credit cards.
Gen X
As Gen Xer myself born between 1961 and 1981, here are some ways we can take advantage of additional savings opportunities, such as:
- Catch-up contributions
If you're 50 or older, you are eligible to make extra contributions to retirement accounts. Catch-up contributions can boost your savings and potentially increase your future retirement income. Catch up contributions are also beneficial to those who have fallen behind on their savings goals.
- Contributing to Roth 401(k), Roth IRA or take advantage of Roth conversions
This generation should start looking at what tax bucket each dollar you earn is going into. Is it going to be a pre-tax bucket? What about an after-tax bucket? Are the taxes deferred or will it be tax free?
Roth accounts are a great planning tool because funding these accounts adequately can reduce your taxable income in retirement. You pay taxes upfront; the account grows tax deferred and if you use it for what you’ve earmarked it for it will be returned to you tax free.
Boomers
As you transition into retirement, understanding your cash flow needs is crucial to ensure a comfortable and secure lifestyle. One thing you should consider before retiring is: What does a typical day in retirement look like for you? Do you have hobbies? Are you passionate about anything new or different than what you are currently doing? If so, what does that cost? Is that cost being considered when you discuss your retirement income needs?
- Understanding your retirement cash flow
It is important for your financial advisor to know this about you. We work with you to understand what your retirement lifestyle will look like. So, that you can make a well-formed decision when transitioning into retirement.
- Annual meeting
Annual reviews are important because they keep both of us accountable! During these reviews you should expect to discuss what’s going right, what’s not going as expected and should anything be changed. Are there any big-ticket items that need to be planned for such a new roof, new car purchase etc.? If your financial advisor isn’t meeting with you annually is your plan still on course?
Every generation should consider: Investment Diversification
Investment diversification and staying within your risk tolerance can be beneficial to you and your needs. As a financial advisor, I'd be happy to discuss your individual financial situation, goals, and background to determine the best approach for you.
As you can see from the generations listed above, having a plan in place whether it be simply getting started, utilizing catch up contributions and Roth accounts, or simply understanding your cash flow needs; planning is the most important. Everyone’s situation is unique, and their retirement plan should be tailored to them. We have enjoyed seeing our clients grow throughout the generations and are always happy to welcome new clients!