Do You Have Retirement Savings?
You need retirement savings! Do you know just how much you really should be saving for retirement? Do you have a retirement action plan? Or are you hoping it is all going to somehow work out? Retirements savings are necessary for everyone.
Ready or not, your retirement is coming! Far too many of us coast along, believing that everything is just great until suddenly … it is not.
Or we are young, fresh out of college or just getting into the work force (or both), and retirement seems so far away that it can be put off for another day.
And then that other day turns into a decade.
For retirement planning, as for all investing, the earlier you start, the more you will end up with later. Let’s get you started.
Make sure to get all of the facts before you start to invest your money anywhere. There are any numbers of investments which may come with a higher degree of risk than makes you comfortable. And with some of them, you can even potentially lose your principle. Still others might not have the return level that you are looking for. Retirements savings are not to be trifled with.
Therefore, it is good to start by talking to both the Human Resources department at your office and also a financial planner or a lawyer, possibly both.
Ask Your Human Resources Rep
Here are some questions for you to ask Human Resources:
- Are my retirement contributions matched by my employer?
- If so, by how much?
- What is the maximum amount I am allowed to legal contribute at my age?
- What will my contribution amount look like in my payroll deductions?
Your circumstances will differ from other people’s, of course. If different questions come up, then ask them! These are just to get you started.
Ask a Lawyer or Financial Planner
Here are some questions for you to ask a lawyer or a financial planner:
- How much money will I need to retire?
- The following major illnesses run in my family; should I be setting aside more to cover possible catastrophic medical costs?
- I have a child or other close relative with disabilities (if applicable) and I want to be sure that they are provided for. How can I set aside funds for their care and well-being without sacrificing my own retirement?
- What makes the most sense financially when I retire, when it comes to my house, which I will (I hope, maybe) own free and clear by then?
Of course, if you have other questions, then ask them. And here is a pro tip: go into a lawyer or financial planner meeting with your questions written down and in front of you. Why? Because lawyers charge by the hour, and your financial planner just might, too. So do not waste any time trying to remember what you wanted to ask – or trying to think up questions to fill the time you have already paid for.
A Caveat When it Comes to Investments and Retirement Savings
Your brother in law may mean well when it comes to giving you advice on investments. And he may even have some expertise in this area. But unless you are his paying client – and he has specialized education and training – then he is not the best source of information for you. Remember, this is your future that we are talking about. As a result, you need to be careful.
Allow me to introduce you to North Carolina prisoner Bernie Madoff, and to the concept of the Ponzi Scheme.
According to Investopedia:
Madoff … [defrauded] thousands of investors out of tens of billions of dollars over the course of at least 17 years, and possibly longer. He was also a pioneer in electronic trading and chairman of the Nasdaq in the early 1990s.
His sentence is for 150 years. And he had to give up all of his assets as a part of his sentence. That figure was in the billions. With a B.
Currently suffering from a terminal kidney disease, Madoff is currently (in 2020) trying to get a compassionate early release from prison. Given the extent of the novel coronavirus pandemic, any idea about keeping Madoff in prison – or letting him out early, for that matter – is going to be complex.
Ponzi Schemes and Retirement Savings
According to Investopedia:
A Ponzi scheme is an investment fraud in which clients are promised a large profit at little to no risk. Companies that engage in a Ponzi scheme focus all of their energy into attracting new clients to make investments.
Essentially, with a Ponzi scheme, the investments paid in by newer investors are the returns paid to the earlier investors. Hence the returns do not come from the operation of a company or its trading on an exchange such as the New York Stock Exchange. Rather, the faked returns for investor #5 are the initial pay in by investor #100 or the like.
So long as there are more investors, the Ponzi scheme can continue. But once the well of new investors dries up, the whole Ponzi scheme collapses, just like a house of cards.
As a result, if you are offered an investment which looks good if you bring someone else in, it just might be a Ponzi scheme or similar to one.
Do not even think of going there.
More Issues with Retirement Savings
The older we get, the more likely we are to be taken in by financial scams. Yeah, I know – it is totally unfair. But there is science behind this. Of course, anyone can be taken in. You may find that Nigerian prince’s come-on to be utterly irresistible. Or you may really think your son is calling you from Costa Rica. And he only needs $2,000 to bail himself out of a foreign jail and come back home. It sounds good, eh?
But there is something about aging. Some of this has to do with losing a support system. When the person or persons who would have pushed back on financial decisions are gone, then there is no check. There is no brake on a decision to bet it all on that long shot in the 9th race at Belmont racetrack.
Hence talking with a certified professional is vital.
How Do You Find an Honest Professional to Handle and Help You Invest Your Retirement Savings?
As is true for a lot of financial situations, you may want to start with your local bank or credit union. The chances of your banker being honest are high – banks are regulated well. Bankers know that cheating their customers carries stiff penalties, including jail time. And the chances of your banker having answered this question before are high as well. You will not be the first person to ever ask for a referral to a financial planner.
And never forget – it is a professional relationship, and not a personal one. If you do not believe you are getting good, honest service from a financial services professional, you can always call it quits. And yes, you will get custody of your money (minus any fees) in the ‘divorce’.
The Social Security Contribution to Your Retirement Savings
But no matter what, you will need to take this money into consideration. So head on over to the Social Security retirement estimator. No matter how young you are, Social Security can give you a rough estimate on how much they will pay you, depending upon which age you retire at (see more about your target date, below).
Note: Social Security cautions:
- “Your earnings may increase or decrease in the future.
- After you start receiving benefits, they will be adjusted for cost-of-living increases.
- Your estimated benefits are based on current law. The law governing benefit amounts may change because, by 2034, the payroll taxes collected will be enough to pay only about 79 cents for each dollar of scheduled benefits.
- Your benefit amount may be affected by military service, railroad employment or pensions earned through work on which you did not pay Social Security tax.”
What It All Means For Your Retirement Savings
Hence the further you are away from retirement, the more of an estimate these figures are going to be. But they should give you a rough idea of what you need to be saving. So, Social Security should dovetail with retirement savings, not replace it. Unless you are independently wealthy, then I am sorry to say, but you are probably going to be working for years. That is, if you want to have any sort of appreciable retirement savings.
In Part 2, we will get into just how much you are really going to need for your retirement savings. Hint: it is going to be a lot. In fact, it will probably be a lot more than you think it should be. Share this and tell your friends what you think of how to live your best financial life.