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Putting off 401(k) Enrollment Could Cost You More Than You Think

Putting off 401(k) Enrollment Could Cost You More Than You Think

Jul 2021

You just landed a new job, and there are so many things to do. You have to set up your new workspace (even if it’s at home), become acquainted with your boss and coworkers and get up to speed on your new responsibilities. And there’s the company-sponsored 401(k) you should sign up for.

It could be tempting to put off investment- and retirement-planning decisions until you settle in. But that’s an idea that could cost you more than you might expect, especially if you have a longer time horizon to retirement.

According to The Motley Fool, a 25-year-old employee making about $47,000 who saves 15% of their income and realizes a 7% annual rate of return would have almost $100,000 more at retirement than another worker with all the same parameters — except that they waited until age 26 to begin their contributions.


So, move signing up for your 401(k) to the top of your to-do list. If the options are a little overwhelming, sit down with a financial advisor who can help you determine your personal risk tolerance and recommend investments accordingly.


Another option to consider if you’re unsure about making investment decisions is electing to contribute to a target date fund (TDF), if your plan offers one. These funds create a mix of investments according to an estimated retirement date.


The fund automatically adjusts the mix and risk of investments to become more conservative as the target date approaches. A TDF handles much of the decision making for you. However, it’s still important to monitor the fund’s performance and periodically check in with your financial advisor to ensure you remain on track to meet your retirement goals.


You generally want to contribute as much as you can to your 401(k) plan. But at minimum, try to contribute at least enough to earn the maximum company match.


Companies that offer a what’s called a 401(k) “match” will match your retirement contributions either dollar for dollar, up to a certain amount — or according to a percentage or formula. You always want to aim for contributing at least enough to receive the maximum possible employer match or you’re leaving free money on the table.


What you may intend to be a small delay in contributing to your 401(k) can lead to months or years as life gets busy. If this should happen, you can easily miss upswings in the market and opportunities for growth to compound over time.


Choose to make retirement planning a priority and put yourself first. Your employer-provided financial advisor can be a tremendous resource whether it’s the first time you enroll in a 401(k) plan or your third or fourth time around. And if this isn’t your first experience with a 401(k), be sure to discuss the options for any funds remaining in 401(k) accounts from your previous employers as well.


Don’t delay this important decision set up an appointment with your financial advisor today.




Fast Track Your Retirement with These 6 Tips

Fast Track Your Retirement with These 6 Tips

Jul 2021

If you hope to retire early, there’s a lot to think about. For example, if you stop working before you’re eligible for Social Security, you need to plan how you’ll draw from retirement accounts — assuming you can access those funds without penalty. On top of that, if you’re not Medicare eligible, you’ll need to consider healthcare costs. Orchestrating your early exit from the workforce can be empowering, but it also requires planning and preparation. Here are a few ideas that can help you retire early.


Be specific in your early retirement plan. The earlier you start, the more successful you’re likely to be. Begin your planning with well-defined goals in mind. Figure out your desired age for retirement and work out how much money you’ll need to achieve the lifestyle you want. In many cases, it’s about starting with your end point and working backward. A WellCents financial professional can help you review your goals and set a retirement timeline that’s realistic. With specific and measurable goals, it’s possible to retire sooner as long as you stay on track.


Downsize ahead of retirement. The single biggest expense most people have is housing according to data from the Bureau of Labor Statistics. Downsizing ahead of retirement can reduce your housing expenses, free up money for other costs and make your goals more attainable. Plus, if you own your home, selling and downsizing can provide you with additional capital to fund your retirement.


Cut back on large costs. In addition to reducing housing costs, look at other big-ticket items you spend money on. Transportation and food are significant costs for many households. Look for ways to reduce what you spend on these expenses, especially eating out, as they can compromise your ability to live comfortably in early retirement.


Make catch-up contributions. If you’re at least age 50, the IRS lets you make additional contributions to your tax-advantaged retirement accounts. The more funds you can set aside now, the earlier you can retire. Additionally, check if you might be eligible for a Health Savings Account. This is additional tax-advantaged money that you can use for healthcare costs before you’re able to enroll in Medicare.


Pick up a side hustle. If you’re looking for a little extra cash to set aside for retirement or to make catch-up contributions, a side hustle can help a lot. Whether it’s Ubering on the weekends or freelancing on Fiverr, you can generate extra funds to help you retire early or provide you with enough income so that you don’t need to work full time.


Plan to live in a less-expensive area after retirement. Geoarbitrage can be a great way to reduce living expenses and retire sooner. In some cases, retiring outside the United States is one way to reduce costs to the point where early retirement becomes possible. Just do your homework about healthcare, taxes and other important financial aspects of being an expat wherever you plan to reside.


Call in the Pros

Early retirement can become a reality if you plan ahead and take steps toward reducing your cost of living. Contact your WellCents financial professional to discuss your timeline and goals for retirement. As you approach early retirement, more frequent check-ins can help ensure that you remain on track.




Retirement Planning Starts with A Dream

Retirement Planning Starts with A Dream

May 2021

There can be a lot to get your head around when it comes to retirement planning: asset allocation, risk tolerance, real rates of return, target date funds — not to mention Social Security and Medicare. Sometimes, it can make you feel like you need a Ph.D. in economics just to make a retirement investment decision — or at least a helpful and knowledgeable financial professional


But there’s one area where even the best advisor can’t step in — and that’s knowing the ideal retirement for you. Only you know what that dream is. And this is really where the retirement planning process needs to begin, because the more specific you get, the better chance your plan has to achieve your retirement goals.


Besides … isn’t dreaming the dream the fun part? So, grab a pen and paper (or your laptop) and start by answering these basic questions:


When do I want to retire? This is a big one. You may think that everyone wants to retire yesterday. While it’s true that some people want to end the daily grind as soon as possible, others may want to work longer because they still enjoy what they do or who they do it with. And for others, the ideal situation might be to downshift into part-time work for a few years before fully retiring — or taking a different job that pays less doing something that’s really fun. Think about what that perfect timeline looks like for you rather than treating your 65th birthday as an arbitrary deadline.


Where will I want to live? Perhaps you plan on staying in your current home or relocating to be closer to your children and grandchildren. Maybe you want to sell your house and buy a condo on the beach — or downsize to save money in exchange for an earlier retirement. If you’re really adventurous, your ideal destination might even be outside the U.S. entirely.


How much do I want to travel? Many retirees look forward to traveling more once they’re no longer clocking in. Consider to what extent travel factors into your retirement dream. Do you want to cruise around the world? Buy an RV and hit the road for months at a time? Or travel to Europe every spring? Also, consider your travel tastes. Are you the type who aspires to stay in four-star resorts lounging in your own personal pool cabana — or are you more of a roadside motel and grab-a-burger type?


What hobbies do I plan to enjoy? Some activities may not cost much at all. If you enjoy tending your garden and watching the birds and butterflies visit, that’s going to cost you a lot less than a passion for dressage. There will be a lot of time to fill during retirement, so think carefully about how you’ll want to spend it.


What about eating out? Do you look forward to frequent fine dining during your golden years — five-course, white-tablecloth meals complete with a good bottle of cabernet? Eating out frequently, especially at nice restaurants, costs a lot, so it’s important to know how this expense factors into your retirement.


Visualize All the Details


Once you get all the specifics laid out, create a binder (or a computer file) with photos and descriptions of all the elements of your ideal retirement. Many self-help experts recommend visualizing goals to improve your chance of achieving them. Add to your retirement “dream book” whenever you feel inspired.


Of course, there are many other retirement expenses to consider that aren’t quite as fun to think about, such as medical costs. But, starting your plan with a clear picture of your retirement dream will not only help you set more accurate and realistic goals, but it can also help keep you motivated to stay the course when it comes to your saving and investing objectives along the way.

The Race to Retirement: Be the Tortoise Not the Hare

The Race to Retirement: Be the Tortoise Not the Hare

Apr 2021

We all know the fable about the tortoise and the hare. And just like in the fairy tale, the tortoises of financial planning — the ones who slowly but steadily achieve — usually come out on top. If you delay planning and saving for retirement, that could leave you in the role of the frantic hare, racing to catch up before you reach the finish line. To help you plan your trajectory on the retirement race course, here are some mile markers for each decade of life.

Your 20s

The best time to launch a financial plan is when you’re first establishing your career. You’re out of school and starting to make your own money. And you probably don’t have a lot to spare after you pay your bills. But before you buy that gorgeous handbag or head off for that weekend in Vegas, establish the habit of paying yourself first through a regular program of saving. Suppose you start out earning $40,000/year at age 25 and contribute 10% of your salary to a 401(k) with an average annual rate of return — and your employer matches your contributions 50% up to your first 6%. If you maintain that level of contribution, you’ll have more than $2,000,000 in your retirement account by age 65. But if you wait until 35 to start contributing, you’ll net only about $825,000 — well less than half of what you’d have if you started earlier. It’s hard to overstate the importance of starting retirement saving early.


Your 30s

Hopefully, this will be the time to build on the good habits you set in your 20s. By now, you’re probably a few years into your career path. You might be married. You may even have a mortgage and a kid or two running around. All of those things translate into higher expenses. Even with increases in income, you may still struggle to keep saving at the pace you want. But this is one battle you need to win. Avoid the temptation of borrowing against your future to finance today.

If your employer has a 401(k), hopefully, you’re already in it. But if enrolling somehow fell off your radar, sign up right away — especially if your company offers a matching contribution. If you don’t, you’re just leaving free money on the table. Don’t give in to the urge to use credit indiscriminately. Mind those card balances and pay them down while you continue to save for retirement and other financial goals.

If you have children, this is a good time to consider setting up a tax-advantaged education account for them. It doesn’t have to start large — even small amounts you let accumulate can make a big difference by the time you’re ready for your little ones to head off to college.


Your 40s

You’re probably in a bigger house with a bigger mortgage, bigger kids and bigger expenses — but also a bigger income and a bigger 401(k) balance. As you earn and invest more, having a prudent tax strategy becomes even more important. You’re working hard to bring home that paycheck and want to keep as much of it as possible. Your financial advisor can help guide you toward more a more tax-efficient investment strategy as you navigate this more complex — and rewarding — stage of life.

Believe it or not — you’re now probably at about the halfway point between your first real job and retirement. This is a good time to take stock of where you are. You should have a better feel for your trajectory — where you’d like to end up and how much it’ll cost when you get there. Sit down with your financial advisor and map out the details of your retirement plan. How much longer will you work? Where will you live after? What will you be doing? Will you continue to earn income in retirement? This time is critical because, at 45, you still have two decades to keep saving and investing.

Your 50s

You’re approaching your peak earning years. If you have outstanding debts (other than your mortgage), make a plan to retire them before you do. The loan you took out for the RV or boat? Pay it off. Likewise with the vacation place upstate. You’ll have so much more financial freedom later on if you do.

Take a closer look at your healthcare options. Do you plan to rely on Medicare in retirement? Bear in mind that Medicare has significant shortfalls when it comes to long-term hospitalization and especially custodial care. Talk to your financial advisor about your overall health and any need for long-term care insurance to provide for your (or your partner’s) future needs.

If you find your contributions to your 401(k) are coming up short of your goals — maybe you’re borrowing against a retirement account during a downturn to pay for health costs or college — the IRS allows people over 50 to make “catch-up” contributions over and above annual limits. The amount can change from year to year, but take advantage of the valuable opportunity to get your retirement back on track if you need to.

Your 60s

This is the payoff — the decade when you can hopefully throttle back a bit and begin enjoying life more. If you’ve followed the path above, you should have savings to help smooth out your transition to retirement.

One of the most important decisions you’ll face is when to begin taking Social Security benefits. You’ve probably paid into the Social Security fund for 30 or 40 years, and you should make the most of the income you’ve earned. Monthly payments are higher if you wait to start collecting, but there are other factors to consider. Talk to your advisor about your circumstances and your needs in this critical area.

Slow and Steady Wins the Race

If you’re on the starting line of the race to retirement, remember that it’s more of a marathon than a sprint. Sometimes it may not feel like you’re getting where you want to be fast enough. While it can be tempting to look for shortcuts and quick fixes along the way, trust that the steady pace, and sustained effort of the tortoise can get you safely to the finish line and the retirement you dream of.


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