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Preparing
for retirement
There's
still time to save up
By
Stacee Sledge, for The Bellingham Herald
For
most, the thought of retirement is liberating — a
much-anticipated stepping away from the daily grind, into a
welcomed world of payback for years spent toiling for a
paycheck.
But
a rewarding retirement can only happen if you prepare yourself
— both fiscally and emotionally — before you take the
plunge.
Obviously,
you must first line up the finances to fund your fun.
Ideally,
this isn’t something you should wait to do until you reach
your forties or fifties. Chris Hemingson, Assistant Branch
Manager and Assistant Vice President Investments for Piper
Jaffray in Lynden put it plainly: “The earlier you start, the
better off you are.”
It
sounds simple. And, if you spend just a few minutes punching
numbers into one of dozens of retirement calculators available
online, you’re sure to be swayed by the dramatic long-term
impact of compound interest.
Using
a simple retirement calculator found at www.bloomberg.com
to play with the numbers shows that if you save $3,000 a year
beginning at age 25 with an annual return rate of 7 percent, you
will accrue $ 598,905.34 by age 65. If all numbers remain the
same, but you wait until age 40 to begin saving, you will have
only $189,747.11. That hefty difference should be enough to push
you to put a plan in place.
Your
first step? Find a financial advisor. Hemingson pointed out just
how risk-free it is to set up that initial meeting: “I don’t
know of any investment advisors in Whatcom County that charge by
an hourly basis — unlike a lawyer or CPA, who’s going to
send you a bill.”
You
might think Hemingson and his colleagues are flooded with people
coming in for free advice, but that’s not the case. “I think
there’s a general fear of ‘I don’t want to seem stupid
about money,’” he said. “It’s not been taught in school;
it’s something that’s passed down from generation to
generation. And, quite frankly, parents are usually the worst
source for this kind of information, because the rules have
changed over time.”
Realize
that a financial advisor is there to help you — not judge. So,
no matter how long you have (or haven’t) been socking money
away, sit down with a professional and find out if you’re
financially ready to retire or on the right path to do so when
you reach retirement age.
Obviously
not everyone will be on the financial ball at the age of 25. But
as you grow older, more things require more of your money: your
first new car, your first home, kids, and their college
education. Until you reach your late forties or early fifties,
many of your available resources that can put away for
retirement get soaked up by other things.
Hemingson
says that as people start entering their power earning years —
typically age 45 and after — they start really socking it away
in investments. And the longer they’ve waited the more
aggressive they tend to be. “They put more and more money
towards the stock market, seeking out the highest return. And
that’s what caught most of the retirees in the last five
years,” Hemingson said. “By being too aggressive, they’ve
suffered too much of a market loss.”
Hemingson
stresses the importance of a good asset allocation model,
investing a balanced amount in stocks, bonds and other
investments, such as real estate. “All markets run in
cycles,” he said. “Nothing goes straight up. The secret to
investing is buying when things are cheap and selling them when
they have reached a higher value. Yet, when many people invest,
they use a different part of their brains; it’s more of an
emotional rather than a logical decision.”
“The
other really insidious thing about retirement,” Hemingson
continued, “is that everyone is living longer. Retirement
planning is very easy if you know exactly when you’re going to
die. I had a client tell me that a perfect retirement is where
your last check is to the mortician, and it bounces.”
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