Looking into the new year, one always has large aspirations. Most of those goals come from wishes or lost habits trying to resurface after being drowned in the busyness of higher priorities. Many of those goals, after an honest attempt (and sometimes not even that far), turn into lost desires, and eventually into possible regrets. This cycle isn’t unfamiliar, or even abnormal, in many cases, this is typical to each and every year. Unfortunately, another cycle that isn’t unfamiliar or abnormal, and also brings the sting of regret, is an unprepared, and financially lacking retirement.
Just as the new goals are exciting to start, especially at this time of year, the larger they are, the sometimes more difficult they are to reach. The same goes for your financial future – trying to tackle that million-dollar-goal (pun intended) in one try is practically impossible. Taking small steps in the right direction will help to achieve that goal.
One small step, with massive consequences, pertains to the dollars in your retirement accounts. Many companies offer retirement plans – you’re probably familiar with the term 401(k), others to include on that list are SIMPLE IRA’s, 403(b) and 457 plans, among a handful of others such as Pensions and Thrift Savings Plans. Regardless of where the dollars are held, ultimately each of these are used for you to have a lifestyle when you are no longer employed. Many companies give the benefit of matching – where the dollars you put in (also known as deferral) are matched by the employer.
These are great benefits to take advantage of, in fact, getting a match from a company is basically free money, albeit – not available for a few decades and subject to employment longevity. One change you might make this year is consider, with a new raise, or change in lifestyle, to increase your deferral by 1%. For example, on a $100k salary, that is only $41.66 a paycheck, if paid bimonthly. Additionally, let’s say you receive a 3% raise each year and from that raise you increase your deferral by an extra percent each year for the next 10 years – that could end up to over an 80% increase in the amount that you retire with. That can mean hundreds of thousands of dollars or more!
This isn’t like a gym membership where you now must force yourself out of bed every morning, or that cyclical goal of eating healthier – and now must try and avoid those tempting treats leftover from the holidays. This change requires only an email or call, and sometimes it’s even easier than that! And once you’ve made the change, you won’t have to look at it again for the entire year! As far as easy goals to accomplish, this is at the top of the list.
Don’t let the large aspirations of your financial future be just another hope and wish. Accomplish just this one goal for this next year and you’ll see the results.
One regret I’ve never heard is – “I saved too much for retirement”.
-Jonathan Dursteler, CRPS®
To learn more about the author of this article, Jonathan Dursteler, visit: https://www.adamswealthadvisors.com/jonathan-dursteler. Or connect with him on LinkedIn: https://www.linkedin.com/in/jonathan-dursteler-financal-planner/.
The example shown above assumes that the starting value for the retirement account is $0.00 at age 30 and assumes the employee retires at age 65. It also assumes that the account earns a 10% gross return or 8% net return. Returns and contributions are compounded and received on an annual basis. Returns include the receipt and reinvestment of dividends and are net of any trade costs. The example above includes a 4% employer contribution that is fixed for the duration of the illustration and a 5% employee contribution that is increased by 1% each year caped at 15% after 10 years at age 40. This is a hypothetical example and is not a result from actual trading and there is no market risk with the hypothetical result. Hypothetical results are often created with the benefit of hindsight, and it may be difficult, if not impossible, to account for all the factors that might have affected a manager’s decision-making process. Hypothetical or back-tested performance often involves certain material assumptions in applying investment decisions that might have been made, based on the investment theory espoused, during the relevant historical period and the data set chosen may not be indicative of present or future market conditions. There are often sharp differences between hypothetical performance results and actual returns subsequently achieved. Due to the benefit of hindsight, hypothetical performance almost invariably will show attractive returns, while actual results going forward may not be as attractive. Past results are not indicative of future performance.