KEDA Voices: How will you secure your future lifestyle?

David Beck,  Vice President at One Strategic Capital, Guest columnist for KEDA & the Kitsap Sun

Many of you had parents or grandparents who came home to an America fundamentally changed, after World War II. The United States was emerging as the preeminent industrial power of the world. There were plenty of jobs, good opportunities for advancement and many corporations offered pensions for their workers.  

Employees were thrilled to have a pension plan, and it was easy to see why. The company your grandfather worked for handled everything. They funded the plan and managed the investments until such time grandpa was ready to retire where upon he received a gold watch, a certificate of appreciation and monthly income for the rest of his life. All Grandpa had to do was show up to work every day. 

Things have definitely changed since then. Today, very few Americans’ stay with one employer for their entire career. The work force of our generation(s) is much more mobile.  Self-directed retirement plans, such as 401(k)s, have replaced pension plans over the last 30 years as the main pathway for saving for retirement, shifting the responsibility for our financial future from the employer to employee.  As a result, we are personally responsible for securing our future lifestyle.  And, for many of us, this can be a difficult challenge!

Unfortunately, many employees lack access to corporate sponsored retirement plans because they work for smaller firms who may not have the resources to implement a plan.  Others lack the confidence and skills to navigate a long-term savings strategy. While others have concluded they don’t make enough money to save for their future even if a plan was available to them.  As financial advisors for corporate retirement plans here in the Kitsap County area, we are well aware of the issues that many people face.  

Fortunately, there is new legislation currently working its way through the U.S. Congress called Secure Act 2.0, which will most likely become law by the end of this year.  This new legislation will provide additional incentives for both the employer and employee to create and participate in a 401(k) or equivalent retirement plan.  The goal of this legislation is to reduce the barriers that inhibit individuals from saving for their future.

According to a recent Retirement Security Survey from Principal Insurance Company, 71% of employees listed “living comfortably in retirement” as a top life goal along with good health and financial wellness.  If you identify with these folks, there are strategies and tools that you can use to help create the future you want.  The irony is that saving for your future can be easy or hard, depending on how you view your relationship with money.  Here are some thoughts on how to make your journey an easier one.

Strategies for saving for your future

What seems evident:

There are certain money principles that can guide us to a brighter future.  The first of these principles is to build and maintain a positive gap between your income and expenses.  If you struggle with this issue, analyze what flows through your check book on a monthly basis.  You may be amazed at what you might find to help reduce your expenses.  The question is, “are there ways you can be more efficient with your money and find the dollars you need to save for your future?”  The short answer is most likely, yes!

• Most financial advisors will tell you that there is a difference between good debt and bad debt.  Good debt is a tool that can help you own an asset that might appreciate over time. Bad debt is the opposite, and it is expensive in so many ways.  Create a deliberate plan to reduce your bad debt over time.  The money that you save from reducing your debt can go a long way to building your future nest-egg!
• Pay yourself first!  In other words, save for your future-self first and then spend the rest!  You are the most productive asset you can invest in!  
• Enroll in your company’s retirement plan if you haven’t already.  If you don’t have access to one, establish an IRA and start contributing dollars to the account.

What is not so evident:

• Compounding is the secret sauce to accumulating wealth over time.  The longer your time horizon the easier it is for your money to multiply.  But there is a caveat to this corollary. Compounding works best when it is uninterrupted.  In other words, the dollars you have saved need to be left in place so that the forces of compounding can be applied over time. Pulling money from your savings accounts to pay for present day needs negatively resets your compounding capabilities, which severely limits your long-term savings potential.
• As financial advisors, we encourage folks to save at least 10% of their earnings on an annual basis, as a rule of thumb.  We also understand that 10% is a big ask for many. But there are a couple things to keep in mind.  Some of you may have access to matching dollars from your company that can reduce the amount you may need to save to get to that 10% threshold.  If you still find yourself short, make a commitment to add an extra 1% to your contributions each year until you reach your goal.  
• There are a number of significant benefits to participating in a corporate retirement plan.  Maybe the most important benefit is that contributions are pulled from our W2 wages before we can get our hands on them.  As we all know, you can’t spend what you don’t have access to.  In addition, if you are saving on a pre-tax basis, you can deduct those contributions to reduce your adjusted gross income for tax savings purposes.  
• Lastly, as an investor in a retirement plan, you are dollar-cost averaging your investments.  Dollar-cost averaging provides the most efficient, cost-effective way to invest over time! (Obviously, there is more to this topic than permitted here, but it is a huge benefit for those wishing to secure their financial future.)

Saving for your future lifestyle

Saving for your future lifestyle is like most things in life, you need a plan if you want to make it a reality! It is more than just putting money into a 401(k).  Much more!  You need answers to questions like:From where I am today, how much income will I need to live comfortably in retirement?

• From where I am today, how many additional dollars may I need to save to meet my income goals in retirement?
• From where I am today, what rate of return might I need on my investments to meet my income goals in retirement?
• From where I am today, how much market risk should I be taking in relationship to my age and when I may want to retire?
• How do I make sure I don’t run out of money before I run out of time?

These are important questions and ones we need answers for.  But you don’t have to find them alone. There are professionals like One Strategic Capital that provide financial advisory services and resources for companies and their employees with the intention of helping all who are interested secure their financial future.  Think of it this way, many of us will live a third of our lives in retirement.  It can be the best years of our lives…if we plan for it.

David Beck is Vice President at One Strategic Capital, a wealth advisory and retirement services firm based on Bainbridge Island. Contact him directly at david@oscfp.com. A member of the Kitsap Economic Development Alliance, he's writing as part of the "KEDA Voices" series, covering areas of our economy.