By Christopher Sadowski
For many millennials, there has been some type of financial uncertainty for much of their lives. For these people between the ages of 25 and 40, they witnessed the stock market crash of 2008-2009, predatory mortgage lending, high rates of unemployment, large student loans and, most recently, a pandemic. Not everyone in that group has been deterred from saving, fortunately. A Bank of America survey in 2020 found that close to one in four millennials had at least $100,000 in savings. Depending on your age, that might be a great start. But what is a comfortable number specific to you and your retirement goals? We’ll work together to find out.
We know that thinking about retirement can be intimidating and overwhelming, or it just hasn’t been top of mind for you. That’s why we welcome investors with portfolios of all sizes — and even those who haven’t begun investing yet. Let’s just talk. We can offer some preliminary advice to get you on the right track, or for a fee we can create a full financial plan to help you establish your goals and visualize the future.
How Do I Know When to Start and When to Increase What I Save?
It’s never too early. Ideally, you will begin saving for retirement during your late 20s to early 30s, to take advantage of compounding interest. Take a look at this example where the individual invested $5,000 per year for just 11 years.
That time in the market is also a benefit because you can handle the ups and downs that are typical and, only when appropriate, take on a higher level of risk (and potential reward) because there is time to adjust your holdings as you move closer to retirement.
Certain life events create both opportunities and necessities that can guide the decisions you make. Once you have your first full-time job, with cash flow coming in regularly, you should save early and often. This is a time when you have discretionary cash, before major expenses like a monthly mortgage or having children. Whenever you get a raise, shift that money into savings or into an employer-sponsored retirement plan, such as a 401(k). Employers typically match up to a certain percentage of what you contribute, about 4.7% on average. It’s money on the table that you’ve earned as an employee benefit, so don’t miss out.
Another ideal stage to begin investing is once you’ve set aside three to six months of emergency savings. First, create a budget and track expenses for a few months. That will give you a very good sense of your typical monthly costs. With your emergency fund in place, it gives you peace of mind to know that you have the ability to stay in control of your finances even in difficult times.
Other milestones include the point when you’ve paid off your student loan debt and therefore have a bit “extra” cash available, or make a move once you have children and are looking ahead to funding their education.
What Types of Investments Are Recommended for Someone My Age?
Above we mentioned employer-sponsored retirement plans, which are an incredibly easy way to get started. Funds are withdrawn automatically with every paycheck. You typically have a choice of several investments to put “inside” the plan (such as an IRA or index funds), and we’re happy to review those options with you.
Our next recommendation is contributing to an IRA each year. There are two types: traditional and a Roth. With a traditional IRA, you are able to deduct the contribution amount on your taxes, which can save you a bit of money now, but ultimately you will have to pay taxes on your contributions and earnings when you begin pulling from it after age 59.5 and you’re in a much higher tax bracket. Compare that to a Roth IRA, which doesn’t offer an immediate tax benefit, but grows tax free over the next few decades until you’re able to begin taking withdrawals at age 59.5, and you pay no taxes on it at that time either. Yep, no taxes.
You can fund an IRA through us, or it may be an option in your employer’s plan. You can contribute to your IRA throughout the year in smaller increments (such as $75 a month, as one example) or you can save throughout the year and fund your IRA at tax time. (Ask us about the benefits of dollar-cost averaging with monthly contributions.)
A third recommendation, often in the order we describe here, is to invest in index funds. Those are a portfolio of stocks or bonds designed to mimic the composition and performance of a financial market index such as the S&P 500 or the Barclay’s Aggregate Bond Index.
They are set it and forget, which is ideal for someone early in their investment timeline, so that there’s no need to make rash decisions when the market is down. It keeps you from letting your fears and biases get in the way.
The stock market has always proven itself. For example, the Dow Jones industrial average saw a 33.84% drop in 2008. It was frightening, to be sure, but the market has always come back and come back stronger. In the 10-year period that followed, the Dow averaged annual returns of 15.03%. That means that a portfolio worth $10,000 in 2008 would have been worth $40,561.24 in 2018, if you’re using 15.03% as your guide. (No investment is guaranteed a certain rate of return.)
As your retirement account grows in value, we’ll add individual stocks to the portfolio, based on our extensive market research and your personal goals. We’ll continue to closely monitor your account. Ask us about the Athlon Stop Process to learn more about our approach.
How Will Athlon Advisors Help Me Meet My Financial Goals?
Our firm is built of advisors of all ages. You can benefit from the experience of our more seasoned advisors and also work with an advisor who may be closer in age to you. They understand your challenges and your goals and can be right there with you. This can build a strong personal connection — one we hope will last for years into the future.
We can also connect you with the pros from our in-house insurance and tax divisions. It’s one-stop convenience for you, but can also benefit you because we can create a total picture of every aspect of your financial life that leads to well-informed guidance and decisions. We bring it all together for you: tax planning and preparation, insurance services and services for small-business owners.
There are a million ways to get to the same place. And we’ll navigate those for you! As long as you’re making a conscious effort to save money regularly, any dollar amount is worth it in the long run. Whatever you feel comfortable with during each stage of your life, Athlon Advisors is here to guide you.