Navigating the Road to Retirement

Preparing for retirement can seem like a daunting task, especially if you’re early in your career.

With student loans, rent, food, gas, car insurance and a night out with friends once in a blue moon, how in the world are you going to adequately focus on something decades away? Maybe you’ll focus on retirement in a few years.

But as you get older, your responsibilities usually don’t lessen, and priorities shift. Instead of rent, you’re paying a mortgage. That money you spent on your Friday and Saturday nights out now goes toward fixing the roof. And instead of feeding just yourself, you’re feeding your family of 5.

“If you’re like most, you can’t plan a comfortable retirement in a matter of years – it takes decades of diligent planning and saving to reach your retirement goals,” said Joe Correnti, senior vice president of brokerage product at Scottrade. “Time in the market is valuable and can potentially have a greater impact on retirement savings than larger sums of money deposited later in life. But whether you’re in your 20s or your 60s, keeping focused on the end game will put you in a much better position for success than choosing to put together a last-minute retirement strategy.”

It’s important to always keep your eye on retirement – you can’t just ignore it now and assume it’ll be easier to deal with later. Think of preparing for retirement like a board game. When you play a board game, you probably experience the good and the bad, and you can’t predict what might happen with the next roll of the dice. But no matter what, you are solidly focused on your end goal.  

The Setbacks

When playing a board game, you’ve probably encountered a slow patch. Rolled all ones. Lost some turns. In real life, everyone throughout their personal and professional lives will experience financial setbacks. The setbacks don’t have to derail your future, but if you’re unprepared, they could ruin your retirement plans.

  • Job loss: You’d be hard pressed to find anyone who hasn’t dealt with or known someone close to them who has faced this setback. No one is immune to a job loss, even a superstar. A rainy day fund can help to soften the blow. Financial experts generally recommend having easily accessible money to pay for 3-6 months of basic expenses while you line up new employment; however, the size of your fund should depend on your individual financial circumstances.  
  • Credit-card debt: Whether relying on credit cards to deal with an unexpected expense or using them to live above your means, high interest debt has the potential to cripple you financially. For instance, if you carry $10,000 consistently on a credit card with 20% APR, you’re paying $2,000 a year just in interest. Paying off, or reducing, credit card debt lowers those interest costs, which allows you to save more money for your long-term retirement goals.
  • Health issues: Health problems get a lot of people into big financial trouble -- more people file bankruptcy due to unexpected health care expenses than for any other reason. It’s especially difficult since many major health setbacks are out of your control. Fortunately, there are ways to help ease the burden of health care costs. Carefully weigh your health insurance options to help prepare yourself in the case of illness or injury. Look into diverting some of your paycheck into a health savings account (HSA) or Flex Spending Accounts (FSA) if your employer offers them. Moreover, you may want to obtain robust disability insurance that could replace a significant portion of income if you’re unable to work. And finally, preventive health measures could prevent many gargantuan health care costs.

The Opportunities

When we play board games, we also experience successes -- rolling sixes nonstop or getting to leap ahead on the board. Similarly, just as we all experience financial setbacks, we can also experience some boosts. If a comfortable retirement is the end goal, take full advantage of these opportunities.

  • Promotion/pay raise: If you feel as though you’re behind in your retirement savings, a nice bump in pay could help you catch up to your goal. Now that more money is coming in, consider boosting the amount of money you put in your retirement account. Even an increase of a percentage or two could make a huge difference over the long-term in your ability to meet retirement goals.  In addition, many 401(k) plans allow for scheduling automatic increases to your contribution, making it even easier to save more money.
  • Inheritance: If you’ve received or expect to receive an inheritance, it’s important to consider how that money could help you achieve your long-term goals, including a comfortable retirement. You may want to save at least some of that money for when you retire. 
  • Unexpected financial windfall:Maybe your house sold for way more than you expected, or that book that you wrote on the side brought in nice royalty money. Whatever happens, it’s important to take full advantage of these situations to benefit you long-term. Similar to an inheritance, consider saving at least some of this money for retirement.

“While you can’t control every factor that affects you financially, you can control your level of preparation,” Correnti said. “By preemptively safeguarding yourself against setbacks and taking advantage of the opportunities presented, you are far more likely to achieve your end goals.”

As always, we would encourage you to focus on your portfolio, taking time to check that it is well balanced, diversified and focused on the long term.  Review your portfolio at least annually, and for some investors more frequently throughout the year.

Question: What pitfalls do you think should people be aware of that could derail retirement? What opportunities could help aid the retirement saving process?

Next steps:  Check out Scottrade’s retirement calculator to help determine how much money you will need for your golden years.

The information and content provided is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered, a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product, or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances, and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.

*Solutions offered through Scottrade Investment Management involve additional fees.

Guidance Solutions from Scottrade Investment Management and Advisor Access from Scottrade Investment Management™ are investment advisory services offered by Scottrade Investment Management, a registered investment advisor. Brokerage products and services are offered through Scottrade, Inc., member FINRA / SIPC, while advisory services are provided by Scottrade Investment Management. Scottrade Investment Management and Scottrade, Inc. are both wholly owned subsidiaries of Scottrade Financial Services Inc. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business.

Investors should consider the investment objectives, charges, expense and unique risk profile of an exchange-traded fund (ETF) or mutual fund before investing. A prospectus contains this and other information and should be read carefully before investing. A prospectus is available through www.scottrade.com or through a Scottrade branch office.

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