Retirement. It’s a word that often conjures images of golden years, leisure, and the culmination of a life’s work. But the truth is, planning for retirement is a financial journey that spans far beyond those closing in on this milestone. At Legacy Credit Union, we believe that retirement planning is not limited to a particular age group; it’s a financial undertaking that should involve every employee, no matter where they stand in their career. In this blog, we will explore the importance of retirement planning for employees of all ages. We’ll review: Starting Early to Maximize Gains, Adapting Your Strategy as Life Evolves, and The Role of Financial Institutions in Your Retirement Journey. Join us as we unravel the significance of proactive retirement planning and how it contributes to a financially secure and fulfilling future, regardless of your career stage.

Starting Early to Maximize Gains

When you’re early into your career, retirement can seem so far away. And because of this, many young people forget to start saving for retirement. However, the most beneficial factor for young professionals is: time. With time comes another factor: compounding interest. If you’re unfamiliar with the term, compound interest is the process by which a sum of money grows exponentially due to interest more or less building upon itself overtime. But let’s put this into an example to understand its importance:

• Let’s say you started at 25 years old, and you started investing $100 a month and you average a positive return of 1% a month or 12% a year. And it compounds monthly over 40 years. You retire at 65, in your retirement account will be a little over $1.17 million.
• Your friend starts saving at 55 years old and they invest $1,000 a month. They receive the same return and it too compounds monthly for 10 years. Your friend, too, retires at 65, they would only have $230,000 in their retirement account. 

Though your friend saved ten times more than you, because you started early and invested over a longer period of time, you have over five times the amount of money at retirement than they do.

Additionally, many companies offer some form of a retirement plan, whether it is a traditional 401(k) plan or a Roth 401(k). Either way, it is best that you take advantage of that benefit, especially if they offer an annual match to your 401(k). Companies often match a certain percentage of your contribution, such as 3%, as long as you also contribute. One thing to note is that there are limitations to how much you can contribute to your retirement. In 2023, the limit was $22,500 but this amount will increase to $23,000 in 2024.

As for those who may be self-employed or looking for non-employer retirement benefits, there are two options. The best part is the IRS lays out all your retirement options on their website.

Adapting Your Strategy as Life Evolves

It’s no secret that your 40’s don’t look like your 30’s, and your 30’s don’t look like your 20’s and that is okay. As life changes it’s important to adapt. As you adapt, your retirement plan should adapt with you. As we mentioned in the previous section, it is important to invest early. However, for this section we want to talk about what to do when you enter the middle part of your career. 

• 30’s: By now, you have more than likely made headway in your career. You’re potentially making more money, and you’re enjoying the fun and freedom that comes with career advancement. Because of this, your 30’s can seem like the most carefree decade of your life. However, when it comes to your 401(k), it’s important to invest as much as possible for your retirement. Doing this allows you to make the most of your income tax reductions as well as any employer contribution matches that may be offered by your workplace.
• 40’s: In life, your 40’s can be very eventful. By now, you may have additional responsibilities such as children, a mortgage, or other large expenses. Because of these additional responsibilities, you may want to play it safe. However, Brian Walsh, CFP at SoFi has an interesting opinion on your retirement plan. “ For professionals in their 40s, your money likely has another 20-plus years in the market before retirement” said Walsh. “You’ll likely still factor risk into your stocks versus bond allocations since you still have time to make up for any potential loss.” In other words, it will be okay if you still chose to be aggressive for a bigger win down the road. Just keep it within reason.
• 50’s: When you hit your 50s, it may seem that retirement is still far off. However, drastic fluctuations or prolonged drops in the market can quickly wipe out years of savings and investment gains. For this reason, it can be a good time to begin slowly dialing back on the risk in your portfolio, depending on your circumstances. Rebalancing to bonds and cash-like securities help protect your portfolio and retirement savings from a major market downturn at the wrong time. However, for those planning on working past 62, they may feel comfortable maintaining more stock-heavy portfolios. Others, who have saved a lot of money and don’t need to take as much risk, may feel better increasing their bonds or cash position in their accounts. 

The Role of Financial Institutions in Your Retirement Journey

At Legacy, we want to help our members craft their legacy. We believe that financial education is the first step in helping you plan for retirement. In addition to financial education, we offer a variety of products and services that help you at any stage of life to help with retirement. 

For someone who is kick starting their career, our Investment Accounts page may be a great starting point for you. You can browse our Certificate Account options that vary between 91 days to 60 months. If you don’t know where to begin, set up a meeting with Legacy’s Certified Credit Union Financial Counselor to understand where your starting point is. Wherever you are in life, Legacy is here to help offer our assistance.

As we conclude our exploration into “Planning for Retirement,” it’s crucial to remember that the melody of financial security is best composed with foresight, adaptability, and the support of trusted financial institutions. Starting early, adapting as life evolves, and recognizing the pivotal role that financial institutions play in this journey are not just points on a checklist; they are the key verses that harmonize your financial future. At Legacy, we stand ready to be your financial companion at every step!