Town Talk Features

Assets & Answers: 8.30.17

How much should young professionals set aside for retirement when their income is close to what they need to live on?

whitey holt, wealth advisor, plaza advisory group inc.
Saving for retirement is an important practice even when income and expenses are tight. It sounds counterintuitive, but going from a savings rate of 0 to 1 percent annually is often more challenging than going from 1 to 5 percent. Take charge now, and begin saving whatever amount is manageable. Get this discipline incorporated into your life before new priorities (new house, spouse, kids) come along and zap your focus.

There are two approaches for savings: grow your top line (income) or decrease your bottom line (expenses) and save the difference. Getting to where you want to be often involves employing a mix of both strategies and phasing them in over a few years.

A good target for young professionals is putting 10 percent of their annual income toward retirement, but those with greater means should aim to save 20 percent. Saving larger amounts in your early years is particularly beneficial because it provides a longer time for your investments to grow.

Be careful to save for other things, too. Retirement is very important, but it is not the only significant goal in your life.

maurice e. quiroga, senior vice president, wells fargo private bank
The answer is quite simple. Start saving as soon as you can, and begin saving as much as you can pre-tax so you don’t miss the income from your paycheck.

In reality, it’s impossible to know the precise amount you will need for retirement. There are too many unknowns, including how much you’ll earn during your career, the age at which you will retire, and how long and well you will live. Because there are so many variables, no one can agree on the total dollar amount that is needed to retire.

Saving 15 percent is a reasonable target, but save more if you can. If your employer offers you a 401k or similar plan, take advantage of it. The amount you can contribute annually to a 401k—$18,000 this year—is dedicated from your income, so there are no taxes on that contribution. Many employers also provide a percent match toward your contribution.

Whatever amount you save, make sure it is sensibly invested. Put it in a broadly diversified portfolio. Talk to multiple advisers who focus on retirement planning and investment management. Look for specialists in this arena that are CFPs, CTFAs, or CWSs. Choose wisely and pick an adviser with a firm that has long-term stability and depth.

Whatever you save and invest today for the long term can make a big difference in the future. If you can save more, even a 1 percent increase can mean a lot over time.