By Paul Bullock
Are you procrastinating when it comes to organizing your finances? You’re not alone. Whether it’s insurance planning, putting together an estate plan, or figuring out withdrawal strategies, most people don’t put retirement planning at the top of their to-do lists because they don’t find it interesting or exciting.
But just because it seems uninteresting doesn’t mean it shouldn’t be done. And, procrastinating further can even be costly—in time, energy, and money. If you’ve been putting off retirement planning, consider these five reasons why you should get started now:
1. You’re Probably Not Saving As Much As You Should
Saving for retirement is one thing, but knowing you have enough is another. And, the truth is, you’re probably not saving as much as you should be.
If you’re planning to retire in your mid-60s, your retirement savings may need to carry you through 30+ years of life. Keep in mind, inflation will decrease the value of your savings over time and you’ll likely encounter additional expenses along the way. A recent study found the average 401(k) balance of those ages 60 to 69 is $198,600, (1) yet the average retirement cost of living is nearly $46,000 per year. (2) At that rate, a savings of $198,000 will only last about four years.
The best way to avoid running out of money in retirement is to work with a financial professional to understand what you’ll need in retirement and how to make your savings work for you. Contrary to popular belief, you cannot simply use a multiple of your annual income to determine how much to save. This is why it’s crucial to plan ahead. The sooner you understand your needs, the more options you will have and the easier your goals will be to accomplish.
2. Healthcare Costs Are on the Rise
Healthcare costs in America are among the highest in the world. (3) And, it’s no surprise that as you age, you will likely require more healthcare services. According to the Fidelity Retiree Health Care Cost Estimate, the average couple at age 65 will need about $300,000 saved to cover healthcare costs in retirement. (4) Most people don’t even have that much in their retirement accounts to live on, let alone to cover medical costs.
Given the events of the past two years, it’s more important than ever to start preparing for the ever-increasing cost of healthcare. The longer you wait, the fewer options you’ll have. Working with an experienced financial professional can help you evaluate your options and build a long-term plan.
3. Tax Strategies Take Multiple Years to Implement
Another reason to not put off retirement planning is that if you don’t start early, you’ll miss out on several tax strategies that take years to implement, including:
Tax-Advantaged Retirement Savings
If you’re in a high tax bracket, being able to save for retirement with pre-tax dollars is a great advantage because pre-tax contributions reduce your taxable income and, ultimately, reduce the amount of taxes you owe. This strategy could save you thousands of dollars in taxes each year. The earlier you start, the more you’ll save.
Roth Conversions
Roth conversions help increase your retirement savings and decrease your long-term tax liability by transferring funds from a pre-tax retirement vehicle (traditional IRA) to an after-tax account (Roth IRA). This allows your money to grow tax-free for as long as you’d like, while also avoiding required minimum distributions (RMDs).
Withdrawal Strategies
When it comes to withdrawing from your retirement accounts, how you take your distributions can make a big difference. Each retirement asset (employer-sponsored accounts, Social Security, traditional IRAs, etc.) has different tax characteristics. Creating a withdrawal strategy can help lower your tax burden by structuring withdrawals from each income source in a tax-efficient way.
To properly implement these strategies and more, a long-term understanding of your full financial picture is required. Putting off financial planning can leave you stuck with a large tax bill that could have been avoided.
4. Compound Interest Takes Time Too
It’s not about timing the market; it’s about time IN the market. Starting early and saving consistently are the most strategic things you can do for your financial future. Just as saving early allows you to take advantage of tax savings over time, there is a compound effect that occurs with the money that is already invested. The money contributed to your retirement account each year will grow exponentially over time, but the key part of that equation is time.
A single penny that doubles every day for a month may not seem like much on the surface—especially when compared to $1 million upfront. But, by the time the 30th day rolls around, you would have over $5 million in pennies. This same concept can be applied to your retirement savings, but, because investments are at the mercy of the stock market, it will take more than 30 days to see that kind of growth.
If you wait to invest, you will miss out on growth year after year, and the resulting loss can be substantial. Not to mention the potential for loss when you try to invest yourself without the proper advice and guidance of a financial professional. We’ve found that many clients are often invested too conservatively and miss out on the opportunity for significant growth in even just a slightly riskier portfolio.
5. Having a Plan Can Alleviate Stress
Do you feel 100% confident in the financial choices you’ve made for your future? Have you encountered more complexities as your assets have grown? Partnering with a financial professional can help alleviate the stress and anxiety that comes from trying to figure out your finances on your own.
Proper retirement planning should help reduce the stress that comes from not knowing where you stand or how you’ll achieve your goals. With the right help, you can spend more of your time doing what matters most to you.
Get Started Today
The sooner you start the planning process, the sooner you will know how much you need and what you need to do. If you have long-term financial goals like buying a house, paying for your grandchildren’s education, or saving for retirement, working with a financial professional is one of the best things you can do to set yourself up for success. Don’t leave your most important goals and priorities to chance.
At Wellington Investment Advisors, we will build a custom plan to put your money to work for you, so that you can feel confident in your financial future. Schedule a no-obligation introductory meeting or reach out to me at paul@wellingtoninvestmentadvisors.com or by phone at (812) 333-0874 to get started. Be sure to check out what some of our clients say about working with our team at Wellington Investment Advisors to learn more about how we can help you.
About Paul
Paul Bullock is CEO of Wellington Investment Advisors, an independent, boutique fiduciary firm serving pre-retirees and university faculty across Indiana. With over 32 years of financial experience, Paul is committed to building long-term relationships through thoughtful, personalized investment advice and guidance. He focuses on a disciplined tactical asset allocation approach to money management through a strong understanding of economic and market conditions and strives to build trust with clients by providing sound guidance. Paul understands the hard work his clients have put in to arrive at where they are today and wants to see them succeed in their goals for the future. Paul graduated from the University of Texas with an MBA, as well as a bachelor’s degree in finance, and has been dedicated to assisting clients with their financial needs ever since. When he is not working, Paul enjoys time with his family and is also an avid equestrian polo player who helps raise money for over 18 different charities through his playing. To learn more about Paul, connect with him on LinkedIn.
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(2) https://www.financialsamurai.com/the-average-spending-amount-in-retirement-is-surprisingly-high/
(4) https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs