Saving for retirement is a process that should last your entire working life, for how much you save during your working years determines how much you have later in life. While you should always be aware of how much you regularly set aside for retirement, there are a few key times to review your retirement savings plan. Here’s when to go over it with a financial planner.
When You Finish Your Academic Career
You should first meet with a financial advisor to go over your retirement savings plan when you complete your final academic degree. Although retirement likely seems far off when you’re at this stage of life, you should begin saving as early in your career as possible. The earlier you save, the more you’ll accumulate through compound interest.
The importance of compound interest is hard to understate. An example illustrates just how much saving early in your career can help you later in life. Assume you set aside $1,000 for retirement and plan on withdrawing it at age 65. Also, assume the investment sees a 7 percent annual return, which is consistent with the historic return of the S&P 500 after adjusting for inflation, according to Investopedia.
In this example, waiting to invest the money at age 32 would let it grow to $10,010 over the 33-year span between your initial investment and your retirement. Investing it 10 years earlier at age 22 would net you $20,118 — over twice as much — during retirement. If you could put aside $10,000, these returns can almost be multiplied by a factor of 10.
In your initial meeting with a financial planner, they can go over the benefits of compound interest in more detail to better help you understand how to prepare for those later years of life. Even if this is only a big-picture meeting, it will set you on a course for a prosperous retirement.
When You Start a New Job
Anytime you begin a new job, you should meet with your financial planner to go over the finer details of how you can best execute your retirement savings plan. With any new job comes changes that should be taken into account so that you can maximize your savings and reduce your tax burden.
For instance, your new position may offer a savings account such as a 401(k) or 403(b). You might also have access to a health savings account (HSA), which can be used for medical savings. Which of these you should take advantage of depends on your particular benefits, any matches that are offered, and other factors associated with your specific situation.
Additionally, you’ll likely experience a change in income. This sometimes will alter which non-employer-sponsored accounts you should put retirement savings in.
A financial planner can help you sort through all the details so that you make informed and wise decisions regarding your available savings options.
When You Have a Child
When you welcome a child into the world, your retirement goals don’t necessarily change. Your current financial situation certainly does, though, because you must financially provide for that child. On average, it costs $233,610 for a middle-income family to raise a child through age 17, and that doesn’t include paying for any college.
You should meet with a financial planner shortly before or after the birth of a new child, as they can help you figure out how to keep on track for retirement while also coping with the added financial costs your family will face in the coming years.
If you’d like to discuss your retirement savings plan, make an appointment with one of the retirement planning advisors at Tax Deferred Benefits, LLC.