By William Postma, Associate Wealth Advisor
Did you know only half of Americans between 18 and 34 are saving for retirement? That only increases to 58% of adults between 35 and 44.
I’ve worked with a lot of adults in their mid-50s over the years who have very little in retirement savings. The No. 1 thing I hear from them is that they wish they would have started saving at a younger age.
There are many things you can do to help improve your saving situation. They’re not all easy, but the outcome can be exponentially better even with the smallest of changes.
Prepare For a Rainy Day
Benjamin Franklin famously said that there are only two things certain in life: death and taxes.
I like to add a third point to that: life happens, and when it rains, it pours.
Data from the end of 2019 revealed that 69% of Americans have less than $1,000 in their savings account. With the cost of a new refrigerator being in the neighborhood of $1,000 to $3,000, most Americans have to borrow money just for a basic appliance.
I personally like to see between 3 and 6 months of living expenses in emergency savings. I also like to see the emergency fund decently funded before you contribute more to retirement savings. This allows you to cover most “rainy day” expenses without having to borrow funds or pull out of your retirement savings.
It’s never too late or too early to start saving for retirement. The more you can save and the longer you can save it, the more exponentially it will help.
For example: If you save $500 per month for the next 40 years, assuming a 6% rate of return, your account value would be around $1 million. If you invested $1,000 per month, over 40 years, you could have upward of $1.85 million.
On the contrary, if you contributed $500 per month, but had less time for it to grow, the difference would be drastic. If you only had 20 years to contribute and let the account grow, assuming the same rate of return, you would only have roughly $220,000.
The moral of the story is that it’s never too late to start, and the sooner and more you can start saving, the faster your net worth can grow.
That being said, life is not all about the endgame. There’s a fine balance between investing in your future and enjoying every day.
Stick to a Budget
Like I mentioned before, life is about much more than saving money. It’s important to enjoy your life, too.
If you have trouble finding that balance, build out a personalized budget. Make sure you are saving and preparing for your future, but also build in money to do things that you enjoy.
No one on their deathbed should care about how much money they have in the bank, or the return on their portfolio. Money is a tool to help you do what you want to do – it can’t buy you happiness, but it can give you choices.
Plan, Plan, Plan
We all have a general outline of what our life will look like: We grow up, possibly go to school, get a job, retire, live the rest of our days on a sunny beach and pass away happily in our own bed at the age of 90.
If you’ve been on this planet for more than 10 minutes, you know life is never that easy. It’s important to plan for what we know in life – work, have a house, pay your taxes, buy cars, pay off college, etc.
The harder part is preparing for the unexpected. What if you’re in a car accident and become disabled? What happens if you’re having twins instead of one kid? What if your spouse passes away young?
Plan for the worst and hope for the best – and when the worst happens, adapt. When we are building out a plan for our clients, the plan is never set in stone. As life happens and things change, your plan will also change.
Find your people
Who do you have in your corner? Who do you trust to keep up on what is going on in the market? What about the investments you have or your retirement plan that is constantly changing? What about legislation and tax code?
It’s important to have a team in your corner that can help you navigate life and be effective and efficient. Even though I work as an advisor full-time, I have my team as well. If I were to pass away tomorrow, my wife knows the three calls she has to make: to my team at KP Financial Group, to my father (who is also an advisor) and to my attorney.
Time and time again, people have come to me needing help with someone passing away. Taking care of an estate can be done easily if you have your people. However, it can be much more difficult in the event nothing is organized and planned for.
Putting It All Together
There are many things you can do to help you live your best life and prepare for your future. Remember: It’s important to save for a rainy day. The sooner you start, the better.
If you have trouble balancing saving and enjoying life, build a budget. Plan for the future – prepare for the worst and hope for the best. Last but not least, find your people.
There is no better time to have a conversation than the present, so reach out. We love what we do and the people we have the opportunity to help.
The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. Actual investment results may be more or less than those shown. This does not represent any specific product (and/or services).