Do you remember being in a learning situation where someone asks a great question and you were glad it was asked? Recently, I have been asked a few great questions several times and I would like to share my thoughts for all to view and scrutinize.
When is a good time to start investing?
"And then one day you find ten years have got behind you,
No one told you when to run, you missed the starting gun."
-Pink Floyd
When is the right time to start eating healthier, begin a fitness program and get your investment accounts going? Now! Time is a precious commodity. It cannot be purchased or borrowed.
If you invest $5,500 into an IRA today and contribute $5,500 per year at a 7% rate of return over next 25 years, you would have an ending balance of approximately $402,000. If you wait 10 years to invest $5,500 into an IRA and contribute $5,500 per year at a 7% rate of return for 15 years, you would have an approximate ending balance of $163,000. This is a significant difference in savings even after accounting for your annual contributions. You can run all different types of financial calculations by clicking here.
Is there a type of account that everyone should have?
"And I’m free, I’m free fallin'"
-Tom Petty & the Heartbreakers
Expect the unexpected. Whether it may be unforeseen medical expenses, job loss, a car accident… what do you do if an unexpected event rears its head?
If you choose to pull money out of your retirement account, you will be responsible for paying federal and state taxes plus an additional 10% early withdrawal penalty if you are under 59½ years old. Click here to see examples of what your net withdrawal would be after taxes and penalties are taken into account.
I encourage investors to have a "safety net" account designed to cover at least six months of living expenses. Having a well funded "safety net" account can relieve stress and allow for time to focus on the situation at hand. The investment allocation will be driven by several factors including your risk tolerance, liquidity needs and overall account size.
What retirement items are commonly overlooked or under scrutinized?
"If you choose not to decide, you still have made a choice."
-Rush
Company Retirement Plans:
Do you like free money? Does your company offer a matching contribution to your retirement plan? If so, are you contributing enough to your company retirement plan to get the full match? For example, let's assume an individual earns $100,000 and their company is willing to give a dollar-for-dollar match up to 3% of their income. By contributing $3000, the company will also contribute an additional $3000 which the equivalent of a 100% return on investment!
Pensions & Annuities:
What income options do you have? Is there an age or service requirement? Do you understand the advantage and disadvantage of each choice?
Social Security:
Do you understand your social security benefit options? Are you divorced or widowed? Can you claim a spousal benefit? Should you claim early? If so, do you know that Social Security will subtract money from your retirement check if you exceed a certain amount of earned income for the year?
All of these items will impact your retirement income, how much you may have to tap into your investment accounts. Please let me know if you have any questions, comments or need any assistance getting clarification on your options.
