Stepping into Retirement

Aug 16 2020

When it comes to saving for retirement, it can be challenging to know where to start and what to prioritize.
Retirement Savings Game Plan

How to Save for Retirement, Based on Your Life Stage

If you’re just starting out, you might have school loans and car payments. A little later in life, kids’ expenses, saving for college and paying off your mortgage might be competing for your hard-earned dollars. If retirement is just around the corner and you haven’t saved as much as you’d planned, it’s not too late to work on catching up.

Whatever life stage you’re in, this handy guide can help you and your financial advisor decide what to do to develop or enhance your retirement savings plan.


Saving for Retirement When You’re Starting Your Career

If you’re first entering the workforce, this is a great time to meet with a financial advisor to set some retirement goals and come up with a plan to reach them. Even saving a little bit consistently will make a big difference later on.


Budgeting and Saving

The first thing to do is figure out your budget. There are all kinds of apps, spreadsheets and programs to help you build your budget and track your spending, but if you’d rather do the dishes, clean the bathroom or tackle almost any chore other than budgeting your finances, this easy 3-step budget is for you!


Easy 3-Step Budgeting (for People Who Hate Budgets) 

If you consider the main reasons for making and following a budget are to save money and avoid overspending, you can do that fairly easily by taking these 3 steps:

Dollar Sign

1. Calculate your monthly take-home income. This is how much money you bring home every month after taxes.



2. Determine your recurring expenses. This step will take the longest, but it’s crucial, and unless your recurring expenses change, you won’t have to do it often. Add up all of your regular bills, subscriptions, charitable giving, automatic payments – anything and everything that you pay on a regular basis.

For this budget to work, you need to prioritize saving money by making it a recurring expense. You can use personal online banking to set your funds to transfer from your checking account to your savings account on a regular basis. Just like automatic bill payments, you can set your account to pay yourselfbeforeit becomes part of your discretionary funds. (A good goal to work toward is 10 to 20% of your take-home pay.)

What is left

3.Subtract your recurring expenses from your take-home income. This is how much money you have to spend on everything else. Gas, groceries, entertainment, birthday gifts – all need to come out of these discretionary funds.


If, for example, you take home $3,000 a month and you have $2,000 worth of recurring bills and expenses, that leaves $1,000 to spend on everything else. Keep that number in mind with each purchase you make, estimating how much you’ve already spent for the month.

Hint: If you share an account with someone else or you’re worried about overspending, you can set up mobile and online banking alerts to let you know whenever a transaction occurs or when your balance drops below a certain amount.

You can also use online bill pay to set your most important payments to be made in sync with your paydays to ensure that the most important things are covered before anything else (i.e. rent, car, insurance, student loans, cell phone bill, etc.).

If you don’t yet have mobile or online banking, here’s what you’re missingEnroll here, or call 800-450-8949 for help.

That’s it! Budgeting really can be that simple.

If you have student loans, remember that you have a long repayment timeline. Don’t worry about paying extra toward principal when you’re starting out. Make the minimum payments, so you can focus “extra” money on savings and your retirement plan. If you have multiple loans with different providers, you may want to consider consolidating those loans to potentially reduce your interest rate and simplify your finances.


401(k), IRA & HSA (Oh, My!)

If your company offers a 401(k) plan, take advantage of it. Saving for retirement is very important, and contributing toward a 401(k) plan is a way for you to easily save for your future. Plus, many employers provide matching funds or contribute directly to employees’ plans. Contribute as much as possible – at least maximizing all matching contributions. Then, set a comfortable starting goal, increasing each year until you reach the max contribution each year.

If you don’t have a 401(k) plan or other employer-sponsored retirement savings plan, open a traditional IRA (individual retirement account) or Roth IRA. You can also open an IRA even if you’re contributing to a 401(k) plan. An IRA is a low-risk investment for retirement that can be a good way to grow your money faster with tax-deferred earnings. 

When you’re young, time is on your side, and the money you save today has many years to grow and accumulate earnings. The longer you wait to save for retirement, the more you will need to “catch up” later to get to where you need to be.

How much should you save in a retirement plan? A good goal is 10 to 15% of your gross income (per paycheck). Most 401(k)s allow employees to make pre-tax and/or Roth contributions.

Pre-tax contributions reduce your taxable income, grow tax-deferred in your 401(k) account, and then are subject to tax upon distribution at retirement.

Roth contributions are “after-tax” contributions which grow tax-deferred in your 401(k) account and are tax-free upon distribution at retirement, after age 59 ½ and if you have had the Roth 401(k) account for at least 5 years. Many younger employees, with decades until retirement, may benefit by making Roth contributions.


If you are unsure about how to invest the money in your new 401(k) account, most plans offer “managed” investments, such as “target date” retirement funds. Target date funds manage your money for you based on your time horizon until expected retirement. They contain a mix of investments – usually stocks and bonds – that automatically adjust and rebalance over time to gradually become more conservative the closer you get to your expected retirement date. As with any investment, they are not guaranteed and subject to market fluctuation.

If you have a Health Savings Account (HSA) – an account, with tax advantages, that can help you save for qualified medical expenses – contribute the maximum amount toward that, too.

The bottom line? Take advantage of your savings plan now, and be in control of your own retirement later!


Build Your Emergency Fund

Now is the time to start building an emergency fund to prepare for the unexpected. Once you get a feel for your budget, work toward building emergency reserves in your money market or savings account of 3 to 6 months’ worth of expenses.

Don’t know where to start? Check out this article for tips on how to easily save $10,000 in 4 years without missing the money.

Try your best to go through this cycle for a number of months without using credit cards, as that can obscure the view of your true cash flow.

Once you see the impact of retirement savings and monthly non-negotiables after tax, you’ll know what your “discretionary” income is. This is what’s available and flexible for the rest of your wants and needs. It will help you put into perspective what’s really important to you.


Start Protecting What Matters

Insurance is all about preparation and protection – it’s preparing for the unexpected so you can protect your assets, family and finances as much as possible should the worst-case scenario happen. When you’re just starting out, you’ll likely need:

  • Renters insurance to protect your belongings against a disaster, such as a fire, and high liability limits to protect you if someone is hurt and you are considered at fault or negligent
  • Auto insurance to help with repair or replacement costs if you’re in an accident with higher liability limits in case you’re at fault
  • Life insurance to cover funeral cost and any education expenses or any other debts you may have accumulated


Wealth Management Basics Most People Need

At minimum, most people should have an estate plan that includes a will, a healthcare directive and a financial power of attorney.

A will allows you to name beneficiaries of your assets and guardians for minor children and appoints a personal representative to see that your assets are distributed appropriately. A will can also create a trust to hold assets and instruct a trustee as to how to administer and distribute those assets.

A healthcare directive appoints someone to make healthcare decisions on your behalf if you are not able to do so. And a financial power of attorney appoints someone to make financial decisions if you are unable to act, such as if you’re on vacation, in another country or in the hospital.


What to Focus on in Your Prime Earning Years

Your prime earning years – your mid-thirties to mid-fifties – can also be your prime spending years. In addition to your own school loans, mortgage and car payments, you might also be dealing with the rising costs of raising children and trying to save for their college educations. But saving for your retirement should be a priority.


Review Your Retirement Plan

Meet with a financial advisor annually to review your retirement plan and make sure you’re on the right track to meet your goals. You should also review and update your will, healthcare directive and financial power of attorney. And if you change jobs, consider rolling over your 401(k) assets into an IRA.


Make Sure You Have the Insurance Coverage You Need

You don’t want a disaster or tragedy to wipe out all of the savings you’ve worked so hard for, so make sure you’re prepared by having the insurance coverage you need.

If you’re ready to move from renting to owning your home, you’ll need homeowners insurance to protect what is likely the biggest investment you’ll make. We insure homes at what it costs to replace them at today’s values – not what the market value is.

Homeowners insurance also covers the belongings inside of your home, but there are limits to your personal property coverage. If you have high-value assets like artwork, electronics or guns, think about adding an insurance rider. And if you live in a flood-prone area, you may also need flood insurance.

Everybody should have some form of life insurance. The loss of a loved one is hard enough on a family without the financial challenges that can go with it. Some companies offer employees low-cost or free life insurance as part of their benefits. If someone would suffer financially when you die, consider increasing your life insurance coverage to make sure you can supplement their income for ongoing living expenses. Meet with an insurance agent or financial advisor to make sure that is enough based on your lifestyle, family status, income and goals.

Before you reach age 55, start thinking about long-term care coverage, which covers anything from nursing home care to help with personal care, such as bathing, dressing and eating, in your home or an assisted living facility.


Start Saving for College

Helping your kids with their college costs is an admirable goal. But make sure it doesn’t come at the expense of your retirement account. They have a lot longer to pay off student loans than you have to save for retirement. That said, setting up a college savings account for your kids doesn’t have to be a massive endeavor – you don’t have to save the entire amount. But by starting early and saving often, you can reduce future out-of-pocket costs. The more you save, the less you and your children will need to rely on loans. Even taking small steps now can make college more affordable. And saving in a qualified college savings plan won’t have a dramatic impact on the financial aid your child is eligible to receive.


Boost Your Savings

You can start taking small steps to boost your savings without breaking your budget, by following these steps:

  • Make saving a priority by having a portion of your paycheck deposited directly into your savings account every month instead of waiting until the end of the month to see what’s left.
  • Set up an electronic piggy bank, like Bell Bank’s ChangeSaver program, which rounds up purchases and puts the extra money into your savings account. Plus, Bell matches 5 percent, up to $250 of your savings every year.
  • If you get a raise, don’t make it part of your budget. Instead, put that money directly into your savings or retirement fund.


Retirement Savings Checkpoints

This Retirement Savings Checkpoints chart from J. P. Morgan Asset Management can help you figure out if you’re saving enough for retirement. And if you need further assistance, give us a call. We’re happy to help guide you in working toward your retirement goals.


How to use this chart:

  • Find the intersection closest to your age and household income.
  • Multiply your household income by the checkpoint shown to get the total amount your household should have invested today, assuming you save a minimum of 5 percent going forward.

Retirement Savings Checkpoints

Model Assumptions: Pre-retirement investment return 6.5 percent, post-retirement investment return 5 percent, retirement age 65, years in retirement 30, inflation rate 2.25 percent, confidence level 80 percent, assumed annual contribution rate 5 percent.

Data: J. P. Morgan Asset Management. Used by permission. This chart is for illustrative purposes only and must not be relied upon to make investment decisions.


What to Do When You’re Nearing Retirement

You might not be ready to retire, but if it’s on the horizon, make sure you’re prepared, so you can enjoy your retirement when you get there.


Form a Preparedness Plan

Meet with a financial advisor to evaluate your retirement income including resources like savings, social security benefits, pension and any other income you might have from a part-time job, farm or business interest. Then, consider your retirement lifestyle, thinking about where you will live and how your budget might change. If you plan to travel, make sure to take those expenses into account.


Consider Your Long-Term Care

Think about how you will handle long-term care expenses, such as a nursing home or assisted living. Seven out of 10 Americans age 65 or older will need some type of long-term care, according to the U.S. Department of Health and Human Services. Some options include long-term care insurance, life insurance and annuities.


Play Catch Up

If you haven’t saved as much as you need, there are some things you can do. People age 50 or over at the end of the calendar year can make annual catch-up contributions to their 401(k) plans. That means you can put more than the regular annual contribution limit into your account.


Review Your Wealth Management Plan

Review and update your will, healthcare directive and financial power of attorney. You should also review your estate plan with your financial advisor. Planning is essential to provide for the intended disposition of your assets, to prepare for your family’s financial security, to secure necessary asset management for your beneficiaries and to save on estate settlement costs and taxes.


Schedule a Mortgage Checkup

Reviewing your mortgage annually can be a great strategy to make sure your mortgage is appropriate for your financial goals and your stage in life. Your mortgage banker will look at your monthly payment, income, credit score and mortgage insurance and talk about your goals.

Mortgage rates are always changing. If you took out your mortgage when rates were higher, refinancing might be in your best interest. And if you can afford a higher monthly payment, you might be able to shorten your mortgage term to pay off your home sooner.

If you’ve built up equity in your home and you have a major expense coming up, or if you’d like to pay down debt, a home equity loan or line of credit can help you. A home equity loan or line at Bell is secured financing, so it may have a lower interest rate than an unsecured loan.

Many people are required to pay private mortgage insurance when they take out a conventional loan – especially if their down payment was less than 20% of the home’s purchase price. But it’s not something you have to pay throughout your mortgage. When the principal balance of your mortgage reaches 80% of your home’s original value and you meet other criteria, such as being current on your payments, you can ask to cancel your private mortgage insurance.


Financial Planning While In Retirement

Retirement is the time for you to kick back and relax, but it’s not the end of your financial planning journey.


Continue to Plan

A financial plan is always evolving. Meet with your financial advisor once a year to talk through your finances. It can be difficult for people to go from accumulating wealth to spending it. A financial advisor can help you make sure your spending plan matches what you’ve saved.

There are several uncertainties that can thwart your retirement plans – such as the possibility of outliving your portfolio, a reduction in Social Security or Medicare benefits, or market changes that decrease your portfolio’s value.

You can prepare yourself to handle these uncertainties by developing a multi-tiered approach to retirement. Consider using different retirement options such as 401(k) and defined contribution plans, Social Security and outside investments, like Roth IRA, traditional IRA and after-tax investments. And consider investing in retirement options with different tax consequences, market fluctuations and interest rate sensitivity in an effort to increase your likelihood of a happy retirement.


Know Your Numbers

Generally speaking, age 59½ is when people can start to access their retirement money without a penalty. Age 70½ is when you’re required to take a minimum IRA distribution, whether you need the money or not.


Figure Out Your Social Security Strategy

There are many situations to consider when you are figuring out a Social Security strategy. If you can afford to wait until age 70 to collect Social Security, your benefits can increase by as much as 8% per year between age 62 and 70, which can make a big difference throughout your retirement.

Consider these points when figuring a Social Security strategy:

  • If you receive benefits early, you get less each month over a longer time period.
  • If you continue to work while receiving benefits before you reach full retirement age, you may need to repay benefits if you earn more than $17,640.
  • If you begin receiving benefits later, you receive more money each month over a shorter time period. For each year you delay, your benefit grows by 8%.

Without employing a specific plan, the Social Security Administration will default to paying you the highest benefit available to you at that point in time. It’s up to you, with the help of your advisor, to evaluate your best approach.

Did you know your marital status affects your Social Security benefits


Consider a Corporate Personal Representative

People often give a lot of thought to how they want their assets distributed after their death, but it’s just as important to carefully consider who you’ll name in your will as personal representative – the person who will carry out your final wishes and administer your estate.

A personal representative is typically responsible for:

  • Arranging for the probate of the will
  • Assembling and inventorying estate assets (including land, homes, vehicles and collectibles)
  • Protecting and managing the assets
  • Notifying creditors and handling claims
  • Filing tax returns and paying taxes
  • Settling disputes among beneficiaries
  • Preparing and maintaining accounting records
  • Distributing assets among beneficiaries

Many people name a family member or close friend to handle these responsibilities; however, an individual who lacks the experience, or cannot devote the time needed, could inadvertently jeopardize a family’s financial security. To ease this burden off of family or friends, you might want to consider naming a professional, such as Bell Bank, to serve as your personal representative. Contact our team of estate administration experts at 701-298-2240 with any questions you may have.

Retirement is about preparedness. It starts with understanding where you are and then planning when you want to retire and how to get there. Our goal is to cover your basic living expenses and add from there to enhance your lifestyle down the road. Contact Bell Bank Wealth Management at 701-451-3000, and we can help you put together a successful retirement plan.


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