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Early in their careers, our clients are often challenged by a limited budget. Their spending decisions might come down to choosing between essentials such as groceries and rent and lifestyle choices like travel and dinner with friends. Many feel that at this point in their lives, retirement planning is a luxury requiring extra time and money they can’t afford.
This feeling quickly changes once they’ve discovered how easy it is to start saving for retirement. Our four-part process empowers our clients with the information and support needed to make important financial decisions. With our personalized approach and knowledgeable guidance, starting your retirement savings plan is easier than you may think.
The retirement planning process starts by talking with your PlanMember Financial Professional about your future goals and how they align with your current financial situation. We will get to know you and together, craft a personalized plan that fits your needs.
It doesn’t take a lot of money to start; it just takes knowing what you have to work with and guidance on where to save it. That’s how PlanMember helps you take the first step. Early in your career you may have the benefit of time on your side, and your PlanMember Financial Professional will show you strategies to help optimize your savings for retirement by starting early.
Tip: Check your budget and know how much you should be saving for retirement We know your budget is often tight when you first start working. We also understand that you still want to enjoy your free time, take trips, dine out and have fun with friends.
Take a close look at your budget and see how you are spending your money. Typically, your paycheck should break down like this:
50% Living Expenses: Living expenses include mortgage, rent, utilities (including cell phone), groceries (not dining out), health care, transportation (e.g., car payment, gas and parking), debt and other recurring obligations such as credit card payments, student loans, child support and childcare.
30% Entertainment and Lifestyle: This is the fun part. It includes dining out, cable, travel, clothes and all the extras that make your life unique.
15% Retirement Savings: Retirement savings includes your employer’s 403(b) or 401(k) plan if they offer one, IRAs, pensions and any other long-term investments.
5% Personal Savings: It is important to have a bit of money tucked away for emergencies or unexpected expenses. You don’t want to dip into your retirement savings unless you absolutely must. Save 5% of each paycheck in a savings account you can access if needed.
Budget Example: If your take-home pay is $3000/month after taxes, it would break down like this: $1500 for living expenses, $900 for entertainment and lifestyle, $450 for retirement savings and $150 for personal savings.
Your PlanMember Financial Professional will work with you to create a retirement savings and investment plan that meets your personal needs. We will walk through this, step-by-step, to inform you about how investing can work for you. The goal is for you to have a clear understanding of what saving for retirement looks like, not just 30 years from now, but in the next 30 days.
To help you invest your savings wisely, PlanMember offers a broad choice of professional investment management and advisory services. Your PlanMember Financial Professional will help you understand your options. Combined with ongoing mutual fund monitoring and professional portfolio management, we’ll help you avoid common mistakes that can undermine long-term investment success.
Tip: Find the money to start saving for retirement Once your income and spending needs have been analyzed, your PlanMember Financial Professional will outline a personalized road map to help you balance spending with retirement savings. The amount you save each month will depend on your retirement goals, income and age.
Start saving 15% of your paycheck in a retirement account There are many small ways to start saving for retirement. Many don’t require a large lifestyle compromise, but just a bit of awareness and occasional self-discipline. Here are some ideas to start:
Take your food and drinks to work: It may only be a few dollars at a time, but it adds up over the course of a year. Assume the average lunch out with a drink costs at least $10, but lunch from home costs $5. If you skip the takeout and bring your lunch three times a week, you save $15/week. Over the course of a year, that’s a minimum of $750 you could add to your retirement savings.
Cut down on cable channels (or give it up completely): Online broadcasting has made it easier than ever to find free entertainment. Skip the pricey cable programming and opt for cheaper or free online subscriptions instead. The average cable package costs $100/month. That’s $1,200 a year you could be adding to your retirement savings instead!
Save on fuel: Gas is expensive, so think of ways to save money that fit your lifestyle. Ride your bike or walk to work if you live close by. Carpool more frequently or take public transportation when you’re able.
Power down the utilities: There are several ways to cut down on utilities to save money, and you’ll be kind to the environment in the process. Turn lights out every time you leave a room. Set your thermostat to 68 degrees in the winter and 78 degrees during the summer for maximum efficiency. Turn the water off while brushing your teeth and take shorter showers. Use energy-efficient light bulbs and appliances.
Tip: Starting small now could have an impact later
Our retirement planning professionals will guide you through a lifelong plan that continues to maximize time, your greatest asset early in your career. Starting now opens up more opportunities to help increase your wealth later. Waiting to save for retirement for even just five years could significantly impact your long-term savings.
Check out our Cost of Waiting article to see why starting early is important and how waiting to save for retirement could be costly.
Let’s take a look at a hypothetical $10,000 investment that earns 6% compound growth each year. This hypothetical investment would grow to $17,908 after 10 years and then to $32,071 after 20 years. After 30 years, the initial $10,000 investment would grow to $57,432, and to $184,202 after 50 years.
You can see how investing early and compound interest can make a big impact on your long-term principal balance.
Example is for illustrative purposes only and not an indicator or guarantee of past or future performance of the investment choices available. Actual return may be higher or lower.
Example assumes a hypothetical 6% annually compound tax-deferred growth. Example is for illustrative purposes only and is not an indication or guarantee of past or future performance of the investment choices available through any PlanMember Program. Actual return may be higher or lower.
Many employers offer 403(b), 457(b) or 401(k) retirement savings plans. These company-sponsored plans allow you to directly deposit a specified amount from each paycheck into your retirement savings account.
We help our members evaluate their options and create a road map designed to maximize potential success. You’ll gain confidence knowing that someone is looking out for your financial future.
Key benefits to participating in employer-sponsored retirement plans Direct deposit avoids temptation: Once you’ve gone through the budget exercise above and know exactly how much you’re able to contribute each month, set up an automatic deposit through your employer’s plan. It will be deposited directly from your paycheck into your retirement account, so you can avoid the temptation to spend it.
Employer Pension Contributions = Free Money: Many public employers contribute to their employees’ retirement savings by way of state pension systems. While every state’s retirement benefit calculation is different, an example would be a calculation that considers your years of service credit, age and final salary. For employees who qualify, the amount of benefits received at retirement are determined by the factors used in the calculation. Use your estimated benefits to help determine the supplemental amount you should be saving each month.
Employer Match = Free Money: Many employers contribute to their employees’ retirement savings accounts. While every company’s retirement savings plan is different, an example would be a company that contributes $.50 per $1.00 you invest, up to a specified percentage of your pay (commonly 4-6%). This is an immediate return on your investment. Find out how much your employer will match and how much you need to contribute to receive the maximum matching contribution. Then write that into your budget.
The keys to a successful retirement savings plan are consistency over time and regularly reviewing your plan with a financial professional. To help maximize your account assets, you also need to continually add, and not withdraw, savings unless absolutely necessary. This can be tough when first starting out, but with our planning and support, it can be easier to make smart choices about your retirement savings.
If you experience a major life change or event that affects your ability to save less or allows you to save more, talk to your PlanMember Financial Professional.
PlanMember understands how important it is to stay in touch, so you’ll have the opportunity every year for a personalized Online Retirement Plan ReviewTM to check that your savings progress is on track. The analysis is designed to help determine if adjustments to your savings plan and/or investment strategy are needed based on the circumstances of your life and career.
Tip: Keep saving throughout your career
Establish an automatic investment plan: Set up regular, automatic contributions to your retirement account from each paycheck. This will help you resist the urge to spend the money another way.
Don’t dip into your retirement account: We understand that life throws curve balls from time to time, and things come up that your non-retirement savings can’t cover. Still, aside from a dire emergency, resist the temptation to withdraw from your retirement account. You can’t maximize the benefits of compound growth with a diminishing balance. Establish an emergency savings account separately from your retirement account and add just a little each month. It can add up quickly.
Get comfortable with your planning professional: Retirement planning is not a “set it and forget it” process. As your life, family situation and career changes, so do your financial needs. Don’t hesitate to communicate financial and employment changes with your PlanMember Financial Professional as they come up. It’s always better to work with us to adjust your retirement savings plan as things happen rather than doing damage control after the fact.
Our financial professionals will help you along the way to give you confidence in your future. As a member, you’ll also have access to a variety of ongoing educational and support services, along with helpful resources to assist you in better understanding the nuances of retirement planning over the course of your life and career. You’ll be actively involved in the progress of your plan as you receive helpful information, updates and insights that include:
Tip: Stay in touch with your PlanMember Financial Professional
They can help you find ways early to start saving for retirement early and help keep you on track toward a future of financial well-being.
Start your retirement plan today! Take the first step. A PlanMember Financial Professional will contact you.