Financially Speaking: Tips to Help Reach Your Magic Number
As we approach Memorial Day, it is a great time to take stock of where you are and where you want to be. I’m not talking about being Down the Shore (there is no better place), making plans for dinner, or possibly a no-shower happy hour. I’m talking about the start of summer. It’s the perfect time to see where you are financially and dream about retirement.
On April 3, a Wall Street Journal article by Anne Tergesen caught my eye. The headline was “The New Magic Number for Retirement is $1.46 Million.” This number was the result of a survey of 4,588 adults by Northwestern Mutual. Is $1.46 million the new benchmark? It is tough to say, but hopefully it gets your attention.
Earlier this year on Jan. 30, Vanguard released its 2023 analysis of more than 5 million 401(k) accounts, and the average 401(k) balance was $112,572. This is far short of the new magic number. Don’t get discouraged. Stop and take a hard look of where you are financially today.
Everyone reading this article is unique and everyone’s retirement goal will be different. Over the years, the most common question I’ve gotten from young people was, how do I become rich? From older people, do I have enough money to retire?
Maybe the lyrics from Green Day’s “Good Riddance” say it best:
“Another turning point, a fork stuck in the road
Time grabs you by the wrist, directs you where to go
So make the best of this test, and don’t ask why
It’s not a question, but a lesson learned in time”
If you are in your 20s or 30s, you have a long runway to retirement. You have a wonderful opportunity to put a plan in place and start now so you may reach your goal easily. If you are in your 40s and 50s, you may be in the throes of raising a family, with big expenses such as college education and possibly weddings coming at you like a freight train. If you are in your 60s, retirement is staring you in the face. Everyone has a different story, and the ending is not written yet.
Regardless of age, you should have a game plan of what your retirement will look like. What is your number? How much money will you need to live and not just exist? One goal should be to retire with no debt. It will make retirement life easier. One last thing, just because you turn 65 doesn’t mean you have to retire. Chances are, it may be better to stay in your current job for a couple of additional years to make sure you hit your number.
If you are in your 60s, you should have already completed your financial plan. A financial plan may give you comfort instead of anxiety. Not knowing if you have enough money to live out your life will make you old before your time. Perhaps delaying taking Social Security until age 70 and continuing to work will put you over the top. There have been countless times over my career when someone has said that if they need money in retirement, they’ll become a greeter at Home Depot. I would simply say that they would be better off continuing in their current job versus working in retirement for minimum wage.
If you are in your 40s and 50s, make sure you are maxing out your 401(k) or 403(b) plans. I know it is difficult to put money away while raising a family. Depending on your career, your income may increase annually via a raise or bonus (possibly both). Put that amount (or as much as you can) into your company retirement plan.
If you are in your 20s or 30s, make sure you are saving today. Make a plan and stick to it. One common objection I have heard over the years is: I can’t save, since I don’t make enough money. Maybe it comes down to your priorities.
Regardless of age, you must have discipline to succeed.
Here are a few things you might want to consider:
1. Start by packing your lunch if you are lucky enough to be back in the office working. If you are working from home, it is even easier, since you are close to the kitchen. Heading out to lunch will cost you about $15, which is probably on the low side.
2. Enjoy your morning coffee at home instead of stopping at one of the well-known coffee shops. An average coffee costs $3 but a specialty Frappuccino or blended beverage will cost you upwards of $6. Don’t forget you are probably adding a tip when you pay.
3. Review your monthly banking and credit card statements.
4. Review all of your subscription costs. Are you paying for some that you no longer use?
5. Maybe entertain more at home versus going out. I know the younger crowd pregames at home and then heads out to their favorite watering hole. Once you are out, chances are you are paying $6 or more for your favorite beverage. Before you know it, your night out may have cost $30, $40, or even more.
So, just bringing your lunch to work three days a week could save you $35, having coffee at home may save $15 to $30 per week, and entertaining at home one night a week may save you $30-plus. A couple of simple changes to your routine may save you upwards of $80 per week ($4,160 a year) or more. This would be a great way to start or increase the money you contribute to your retirement account. This amount doesn’t include canceling the monthly subscriptions you no longer use.
Don’t leave company money on the table. Many 401(k) plans offer an employer matching contribution. A common matching schedule (safe harbor plan) is where the employer contributes 100% of the first 3% you contribute and 50% of the next 2% you contribute. So, if you contribute 5%, your employer is contributing 4%. This is an 80% return on your money before you invest it. If you are not enrolled in your company 401(k) plan, then you may be giving up free money.
Regardless of where you are in life, stop and evaluate your spending habits. This may be the difference of living a great retirement life or simply existing in retirement. Perhaps you’ll look back later in life and say, this was the fork in the road and you chose to change your path. Now, grab your chair, book, and favorite beverage, and head to the beach. Don’t forget the sunscreen.
Fred Dunbar, CLU®, ChFC®, RFC®, AIF®, is the former President of Planning Directions, Inc., a registered investment adviser, and Common Cents Planning, Inc.. Securities are offered through Commonwealth Financial Network®, member FINRA/SIPC. Fred may be contacted at 800-647-0762, by e-mail at freddunbar@commoncentsplanning.com or by mail at 239 Baltimore Pike, Glen Mills, PA, 19342.
Advisory services offered through Planning Directions, Inc., a Registered Investment Adviser, are separate and unrelated to Commonwealth.
This commentary is meant for general informational purposes only and is not intended to be a substitute for professional financial, tax or legal advice. Investing involves risks including the potential loss of principal. Past performance is no guarantee of future results.
