IGNITE July 2019
You’re not too young to act
Get the right financial advice for you
As young professionals, we might not be very worried about retirement because it seems so far off. The truth is, now is the best time to be talking with a financial advisor to make sure you are maximizing all the retirement savings strategies you can.
Here are a few things to consider discussing with your financial advisor.
Make Sure Your Financial Advisor is a Fiduciary
Is your advisor putting YOUR goals ahead of their own? If you are unsure how they are being compensated, be sure to ask! The worst thing you can do is pay blindly for hidden fees that are buried underneath your investments! Some advisors will make multiple transactions (or trades) within your account to rack up their own commissions/fees.
CERTIFIED FINANCIAL PLAN- NER™ professionals are required to act as fiduciaries according to the CFP Board’s Standards of Conduct. This means they should be putting you first! (Visit www. cfp.net/public-policy/public-policy-issues/ fiduciary-standard.)
Review Your Goals Regularly
What does “retirement” mean to you? Whatever your goal is, be sure you know what you are retiring “to,” or you might find yourself bored with all the free time you suddenly have.
What Avenues Do You Have to Have?
Have you heard of a 401(k) plan? Your employer should have a retirement plan set up for you to contribute to, as well as an employer match. Put in as much as your budget allows, with the minimum being the employer match (typically 4 to 6% of your gross salary). The IRS allows you to max out the 401(k) at $19,000 per year! A good retirement savings goal to work towards is 15 to 20% of your salary.
On top of your employer’s plan, you can also contribute to an individual taxadvantaged account – called an IRA. The maximum annual contribution is only $6,000. There are two ways to contribute to your retirement through an IRA – pretax or post-tax. If you contribute to your retirement pre-tax (traditional IRA), then you get a tax break now, and the money grows tax-deferred. But, when you withdraw funds in retirement, you will pay taxes on any funds you take out.
Alternatively, when you contribute to a Roth IRA, you don’t get a tax break now (the funds go in post-tax), but the funds will grow tax-free, and, any qualified withdrawals will come out with no taxes due in retirement (because you paid the taxes today).
Be Cognizant of Your Taxes!
While we can never predict what Congress will change with the tax law, most people will see their tax brackets increase throughout their careers. It may make sense to contribute to a Roth account early in your career, when your taxes are relatively low, then switch to a pre-tax (traditional) savings plan to save on taxes when you are near the top brackets.
What About Health Care Savings?
Healthcare will likely be one of the biggest expenses in retirement, with most couples spending a minimum of $250,000 on healthcare throughout their retirement years! If you haven’t talked to someone about a Health Savings Account (HSA), make sure you do. This is a huge savings opportunity! The 2019 annual maximum contributions are $3,500 for individual coverage and $7,000 for family coverage. This is a TRIPLE tax savings! The funds go in pre-tax, the funds grow tax-deferred, and, if you withdraw funds for qualified medical expenses, those come out tax-free! To be eligible for an HSA you must be covered by a highdeductible health plan (HDHP).
Know Where Your Money Goes
For all you Dave Ramsey fans out there – “if you don’t tell your money where to go, you will wonder where it all went!” Keep track of your spending for a month or two. This will help you identify areas where you may be able to cut back in order to increase your savings.
With longevity on our side, NOW is the right time to look into your financial future. Are you ready?