Probably not… But! There are a lot of steps you can be taking now (that take barely any time) to get started on the road to retirement when you’re young!
Goal Setting
When it comes to retirement, one of the first things you should do is set up realistic goals. I get it, if you’re actually 20, that might seem impossible. Goals can change, but! By having some in mind early, you might get a leg up on making sure you can have exactly what you’ll end up wanting.
So, what kind of goals are we talking about? Well. Ask yourself what you want retirement to look like. Do you want to travel? Own a home with some land for gardening? Maybe you’ve always dreamed of having a boat? These sorts of things are important to keep in mind because they can tailor where you end up investing.
A good rule of thumb is to come up with “needs,” “wants,” and “dreams.” Wants and needs might come later, but dreams are definitely something you can start considering as soon as… well. Yesterday!
As you get older, you’ll start to need to define your needs and your wants. You might need to start thinking about what you want to leave for your kids or your family, or whether you’ll need nursing care. Once you start to get those flushed out, you’ll be able to figure out which of your dreams are truly attainable based on your financial situation
Financial Planning
Speaking of financial situations. Most retirement plans really focus in on investment and planning. You simultaneously have a lot and a little amount of control when it comes to your investments. For example, you can set up your own investments in an IRA or maybe even put money into an ETF or an Index Fund. Or you can put money into stocks! We just seriously recommend you talk to a certified financial planner.
Financial Planners – Financial advisors are not financial planners. A Financial advisor is a broad term that covers a number of certifications. If you’re looking for someone who is going to help manage your investments and who focuses on just you and your family, you’re looking for a CFP, a Certified Financial Planner.
Within the realm of Financial Planners, you’ll find commission based or fee-only financial advisors. The difference is what you’d expect, commissions-based planners make money when you make money, whereas fee-only planners have a rate. You might think this means commissions-based advisors are better, but that varies from place to place. In fact, a lot of commissions-based financial planners work within larger retail brokerages, which means they are often tied to a firm/set of products. Be smart and do your research before choosing any CFP.
Personal Investments – We highly recommend you make all investments with the advice of a CFP. But, investing is becoming more and more accessible these days, so here’s some basics. When it comes to personal investing you can go with stocks, bonds, or the ever popular crypto. Many apps allow you to trade/purchase these just like any other day trader. That means its kind of up to you how much time you put into this increasingly common hobby.
There are a LOT of resources out there for investment. I think its important to always consider where you’re getting your information from. If its from one person, do they have stake in what they’re pushing? If so, could they be using their platform for their own gain? Another thing to consider is how much you’re putting into something. While it’s not really a direct comparison, investments can often feel like gambling. Not to put too much of myself in this article, but when I first got started, I simply put money in that I really wasn’t afraid to lose (and then I lost it! That’s why I’m not giving specific advice here).
Within investing there are safer options as well, such as index funds or ETFs. Most people consider an index fund to be a passive form of investing. They really don’t require anyone to keep a close eye on the stock market ticker, which is probably good for your mental health, let’s be honest.
Again, we highly recommend you use a financial planner before making any big choices. Investing is a great option, but it isn’t guaranteed to be reliable.
IRAs and 401Ks – When it comes to reliability in investing, you tend to turn to an IRA. While most people have the option to invest in one through work, nothing is stopping you from setting up your own outside of work that you can keep with you no matter which career path you take.
Most brokerages have their own form of IRA that you can sign up for on your own, but we recommend you do your research. For a good place to get started you can check out Nerdwallet’s monthly “best place to set up an IRA” site here. Your financial planner probably has some opinions as well, so you might want to talk to them about this! They might even manage it for you!
One of the most important things to keep in mind is if you want a traditional or a Roth IRA. At this point, I’m guessing everyone has had this explained to them at some point, but the main difference is if you’re going to be taxed when the money goes in or when the money comes out. Basically, you’re just guessing if taxes will be higher when you retire or before you retire. Talk to your financial advisor if you really can’t make up your mind!
Benefit Programs
I know we might sound like broken records focusing so much on benefits, but this is kind of what its all for. You need to be healthy today so that way you can enjoy retirement later. Your benefits will help with that! But also, there are plenty of benefit options that you lose access to once you retire (but can keep if you have them prior to retiring).
Supplemental Insurance refers to insurance outside of the traditional healthcare trio (medical, dental, vision). Aflac and long-term care insurance is hard to get once you retire (in fact you probably won’t even be able to get it through your employer). On top of that, a lot of supplemental insurance takes your current health and age into account… meaning its usually cheaper and easier to get when you’re young and healthy. Depending on your plan, that might influence how much you pay for the rest of your life! So. Talk to your employer about what plans are limited after retirement or which you need to consider before you’re old and unhealthy.
Here at SDPEBA we recommend you consider Aflac, Unum LTC, and Life Insurance while you’re young and healthy. For the reasons why, check out this article.
Medicare – Despite having written around 10 pages on the subject, Medicare still confuses me. Type A, B, C, D, they could have the whole alphabet up there by now and I wouldn’t be surprised. Here’s our article on Medicare if you want to see what I’ve already put out in the ether.
To put it plainly, you’ll eventually need to decide on if you want traditional Medicare through the government or more through a third party insurance company. But again, it’s a bit more complicated than that, so we recommend you check out this article.
More to Consider
The biggest worry with retirement is money. So. When you’re planning for it, consider where your income will come from. Are you going to get a pension check? How much will you be paid for social security? How much did you save? How much did you invest and when should you divest?
Obviously, a lot of these questions can’t be answered right away, but if you reverse engineer them you can start finding out what you need to do right now in order to have what you want in the future.
If you want to own that boat, well. You better make sure you have enough to buy and maintain it, along with the money necessary to afford your daily expenses. Same goes for someone who wants to travel, garden, or anything else of the sort!
Additionally, you should always be keeping your current health in mind. A lot of different behavior can lead to problems when you’re older. While it might not be fun, sometimes you have to make smart choices today that you won’t be able to thank yourself for until you’re older. At the very least, staying healthy, getting regular checkups, watching how much you smoke/drink, etc., will greatly improve the quality of your live when you retire. If I can put it the most irritating way possible, it’s a different form of investing.
Okay, I’m going to get off my high horse now, because obviously you have to be able to enjoy being young too! There’s just a balance to strike. And if you reach it early, well, you just might be set up for life.
Thanks for reading! This is part of our running series of “Road to Retirement” articles, where we try and help you figure out exactly what you should be thinking about in order to have the best retirement possible. I want to take a second to state that this isn’t really financial advice, it’s just general things to know! A good jumping off point, really. Do your research, hire an advisor, do your due diligence. I’m just a writer, what do I know.
Speaking of knowing nothing! I set up a quick survey here that I’d love to have you fill out. It is REALLY short and isn’t looking to do anything except tell me what you want me to write about when it comes to retirement.