Key to building your nest egg: Just do it
Financial advisers throughout Butler County say it's not unusual for people to, at some point in their careers, pause to wonder if they're doing enough to build a retirement nest egg.
“It's really easy,” said Howie Pentony, client portfolio manager and founder of Pentony Capital Management. “You only have to do three things: work hard, save money and invest.”
Start at the beginning
Before trying to map out a retirement savings plan, Chuck Headley, vice president of wealth management at Armco Federal Credit Union, said he advises all of his clients to answer two questions:
1. What is your goal?
2. How long do you have to achieve it?
The amount a person should contribute to their savings plan regularly, and the level of recommended aggressiveness depend on the answers to those two questions, Headley said.
A long-standing and popular rule of thumb is to save 20 percent of your net (after-taxes and deductions) earnings, said Wendy Bennett, senior financial adviser with Bennett Associates Wealth Management.
But life isn't always a simple equation.
“While the numbers suggest that 20 percent will help achieve financial security through old age, this may seem impossible, especially if you're currently strapped with debt,” Bennett acknowledged.
“Saving something is better than nothing, so start small — maybe 3 percent. When that doesn't hurt so much, go up 1 or 2 percent. It's a process — keep the 20 percent goal in mind to avoid becoming complacent.
“Also, it may be easier to increase savings in a manner that coincides with a pay raise because you shouldn't miss something you never had.”
401(k) benefits
Another good starting point, universally cited by the pros is utilizing a payroll deduction.Most notably, taking money out of your paycheck before it's in your hands helps pave the way to consistency.“It's hard to sit down every month and write a check,” Headley said. “It's human nature that something will come up eventually. With a payroll deduction, money can flow into a Christmas account, a savings account, a 401(k). For 60 to 70 percent of my clients, it's how financial savings are done. Out of sight, out of mind.”Sending a little cash to a Christmas Club account or savings account each month can build to a short-term goal, or it can accumulate to investment size, the experts say.“I recommend building two accounts,” Pentony said, “a retirement account and a regular investment account.”And diverting some pay into a 401(k) is another universal tip.“Because (in most cases) they take it out of your pocket pretax,” Pentony said. “If you put $100 in your 401(k), how much are you really putting in? Because it is pre-tax, it only costs you about $80 to save $100 … and if your employer matches your contribution, that's even better.”While the percentage of income you should contribute to your 401(k) is a personal variable, experts recommend trying to hit the company match.Bennett expanded further: “If your employer offers a retirement plan such as a 401(k) or 403(b), you should save at least enough to get the full employer match if one is offered.“As an example, if your employer offers a 50 percent match on your contributions up to 6 percent and you're making $50,000, here's how that would work: You contribute 6 percent ($3,000) and your employer matches 50 percent up to the 6 percent ($1,500).“So, for your 6 percent, or $3,000 contribution, you end up with 9 percent when you include the 3 percent match from your employer, or an extra $1,500, for a total retirement contribution of $4,500. Of course, if you're able, you should contribute more than the amount that is employer-matched so you can grow your retirement nest egg faster.”Headley noted the government will allow you to put up to $19,000 a year in a 401(k) if you are under age 50, and a maximum of $25,000 if your over 50.
Next stepWith that foundation, the experts say, the next step hinges on the answers to those first two questions.If you're saving for a need that is a year or two away, maybe a down payment on that retirement luxury item, a savings account or a certificate of deposit are good choices, Headley said. With a 24- to 60-month window, conservative mutual funds might be a good choice, he said.“There's also a comfort level with risk to consider,” Headley said.He also calls Roth IRAs a potential good choice for retirement purposes.“When you turn 59½, 100 percent of the money is 100 percent tax free,” Headley said. “But, if you need to, you also can access your contributions prior to age 59½. That isn't the recommended course, but in reality, life happens. And you can access it if something comes up.”The IRS allows people under age 50 to put $6,000 a year into a Roth account and people over 50 can put up to $7,000 a year in, Headley said.Bennett also recommends the Roth IRA option, saying, “If you qualify for a Roth IRA — use it. Money you contribute to a Roth IRA today comes back to you tax-free when you're older, so the more you save in a Roth, the less you'll need to save in total because you won't have to pay taxes on the Roth withdrawals in retirement.Not too lateThe experts also agree that, even if you are coming to the nest egg idea late in the game, there are ways to build an investment.“And it doesn't take big bucks to get started,” Headley said. “Pick a number you are comfortable to get started with. Then, every time you get a raise, bump up what you are saving … not necessarily the whole raise. Or if you get overtime, maybe dump a little in. Three or four years down the road, those little increments could add up. It's most important to just get the habit going.”While Bennett agrees that it's never too late to begin saving, she also notes that “the older you are when you begin saving, the more you'll need to save. A great way to reduce the stress of saving a lot for retirement years is to minimize your expenses.“The lower you keep your expenses, the sooner you'll achieve your retirement savings goal,” she said. “If you are currently in debt, once you pay off debt, those monthly payments should be redirected to retirement savings.”
