Your Retirement Planning Journey, Part 1: First Steps

Yes, for the first time, you’ll be making some real money. So, go get that paycheck — and get to saving.

Retirement planning waits for no one. The best time to start saving for the end of your professional career is when it begins (and if you’re a little late to the savings game, then the time is now). Even if your initial contributions to a retirement account are modest, you will be glad to have done it when you’re ready leave the workforce.

In the first installment of this series examining the different stages of your retirement planning journey, we’ll break down the first steps on the path and how to begin.

If you’re in your early-20s, retirement might be the last thing on your mind, but it’s important to remember that preparing for it is a long-term undertaking. Most of us will take decades to reach our retirement goals — and with life-expectancies increasing, retirements are expected to last longer and, therefore, be costlier for younger generations — so the earlier you start saving, the better.

Perhaps the most significant advantage of beginning early is it enables you to fully enjoy the benefits of compound interest. Compounding accelerates growth by adding interest payments at consistent intervals to the sum of your initial investment, continued contributions and previous accumulated interest. Over time, savings accounts exponentially grow to well beyond what you personally contributed.

Additionally, a decades-long savings campaign accounts for the ups and downs, zigs and zags, and straight-up roadblocks that will inevitably arise throughout your career and life. Jobs change, children are born, markets evolve and a seemingly endless number of factors inevitably will influence your retirement planning strategy. Ideally, you won’t decrease the amount you’re saving with each paycheck, but circumstances may dictate changes. A longer lead time, however, smooths the road to retirement and encourages consistent growth.

How to Start

The first steps on the retirement journey can seem daunting, and they are easy to overlook early in your career, but that’s being short-sighted. Instead, consider:

• Setting a goal: You will want to determine a savings goal and set benchmarks to help gauge your progress. Perhaps within a certain timespan you want to have saved three times your current salary, reach $1 million by age 45, or have enough to retire comfortably by 60. A tangible goal creates the motivation to save.
• Comparing employer 401(k) options: Many employers offer access to 401(k) retirement savings plans that give employees the opportunity to choose the investment funds that go into the account. These deserve scrutiny because the average rate of returns on given funds can vary drastically and some may carry more risk than others. Also, some employers offer the choice between pre-tax (traditional 401(k)) or after-tax (Roth 401(k)) contributions. Regardless of your decisions, it is vital to maximize contributions each year to fully take advantage of your employer’s matching contributions, if offered.
• Opening private accounts: Other long-term savings accounts, such as individual retirement accounts (IRAs), are good options for those who don’t have access to employer-sponsored plans. They often allow for flexibility in deciding where investments are made, as well as their own set of tax advantages. Having a mix of accounts enables you to diversify your savings and enjoy varying benefits.
• Hiring a wealth manager: If you don’t know your IRAs from your 401(k)s, you may want a professional to guide you in these early days and beyond. A wealth manager keeps a close eye on the performance of investment accounts, adjusts where funds are invested, keeps you appraised and suggests new strategies to grow your portfolio. For some, this may be a step for a few years down the road, once you’re more established in a career and have built a foundation of savings.

What to Remember

As you get started on your journey, keep in mind these pointers:

• Don’t be frustrated if your early returns are small. Money needs time to grow. Remember, it’s a marathon, not a sprint.
• Maintain the pace you set to meet your initial goals, especially at the start to create a healthy habit.
• If you receive an unexpected windfall of cash, such as an inheritance, consider putting some of it into your retirement accounts and potentially adjusting your goals upward.
• On the other hand, recognize certain life events may temporarily disrupt your plans, and you may need to play catch up at times.
• Your starting salary will not be your last, so as you earn more, consider increasing how much you’re saving. Committing to a saving a certain percentage of your pay, rather than a specific dollar amount, is a best practice.

Your first steps on the retirement journey are among the most important, but every stage presents unique opportunities and challenges. Check out Part 2 for the next steps on the journey, and contact F.N.B. Wealth Management to learn more from our experts.