By Kevin Driscoll, CFP®, VP, Advisory Services, Navy Federal Financial Group
It’s great to see saving for retirement was the top goal for Military Savers in 2017. It’s top of mind once again as the Blended Retirement System rolls out for service members this year. So, how do we turn our retirement savings goals into reality?
It starts with opening a retirement account. Whether that’s through BRS, an employer-sponsored plan, or your own IRA is up to you. Of course, any plan with a matching contribution is your ideal starting point.
But to have success and ultimately reach your goal, you’ll need details about your retirement, discipline, and an investment technique known as dollar-cost averaging.
Let’s take a closer look at what each of these mean for you.
If you want to save for something, you need to know how much it’s going to cost. Pinpointing the exact cost of retirement may not be feasible, but you can come up with an estimate. Remember, everyone’s situation is unique so there’s no universal solution.
However, if you can imagine your ideal retirement, you can start to get a sense for the details. Those will shape how you plan.
Location: If you’re staying put, you already have a good idea of your area’s expenses. If you’re thinking about moving, do some research around cost of living in that place. Uncle Sam doesn’t disappear in retirement, either. You’ll have to account for both state and federal taxes as they apply to you and your assets. You’ll find some states are friendlier for retirement than others.
Family history: This is often overlooked, but it’s a critical detail. Your family’s history can give you a sense for your expected healthcare costs in retirement, as well as how long you’ll live. At first it may feel strange doing this research, but you need to know how long your retirement will span, and what health issues you may have to deal with.
Lifestyle: How will you occupy your days? What about travel? Will you continue to spend as you do today? Consider your current spending habits, and imagine relying purely on savings to maintain that lifestyle for 20 years or more.
There are a plethora of details that fall into these broad categories, and more. When it comes to the details, ask yourself those important questions.
As a service member, you know this skill well. It happens to be one of the central tenets of saving, too.
You opened that retirement account with a clear purpose, so stick to it. It will be tempting as your account grows to decrease contributions or even borrow from it. Avoid this at all costs.
Patience is a big part of this, too. Your retirement account is not your bank account, and doesn’t need to be checked on a daily, or even weekly, basis. Consider checking your progress from month to month, but don’t make any quick decisions without doing your homework. Especially if you have a target date fund, which will automatically rebalance as you get closer to retirement.
Be steadfast and disciplined, and you’ll get where you need to go.
If your retirement contributions come directly from your pay, then you may already be using this technique. If you’re not, then it’s definitely time to start!
In an ideal world, we would buy investments when the market is low and sell when it’s high. Unfortunately, there’s no way to predict that. That’s where dollar-cost averaging comes into play.
Dollar-cost averaging is when you invest a set amount of money on a regular schedule. This means you’re always buying regardless of what the market is doing. When the market is low, your money will buy more shares. When the market is up, you’ll still be investing at the same price as your peers. At the end of the day, you want to have more shares than less.
This technique can also benefit you if your goal is to avoid risk. If you invest $5,000 at once, all of your funds will be subject to the current prices. However, if you spread your investments over time, you may be able to take advantage of price changes and buy your investments at a lower price than previously listed.
Having the equivalent of one year’s salary saved for retirement by age 35 is a great rule of thumb. Meaning, if you’re making $50,000 a year at age 35, you should also have $50,000 saved in your different retirement accounts.
By focusing on your details and staying disciplined, the results will fall into place. Let automatic contributions and dollar-cost averaging do the work. And since your accounts are tied to investments, compounding will take it from there.
No matter your age or financial situation, planning and saving for retirement should be your mission, and there are plenty of resources available to help guide you along the way.
Are you trying to save money? Let Military Saves help you reach your savings and debt reduction goals. It all starts when you make a commitment to yourself to save. We'll keep you motivated with information, advice, tips, and reminders to help you reach your savings goal. Think of us as your own personal support system.
@NavyFederal has tips on how to plan one of the most important missions of your life: retirement >> http://bit.ly/2HPXjwd @MilitarySaves