The only way to climb Mt. Retirement is one step at a time.
Jesse Will is an Austin, Texas-based journalist and dad who has contributed to The New Yorker, Rolling Stone, The Wall Street Journal, Men's Journal, Pitchfork, Popular Science, Road & Track, and others. He’s not a financial genius, but like so many parents, he’s here to learn.
These socially distanced days are many things — lonely, boring, anxiety-inducing — but they are at least somewhat productive for me. I have learned to bake a fine loaf of bread. I have taught the grandparents how to properly FaceTime. I can now play “Under the Milky Way” on the guitar, much to our neighbors’ annoyance. I have thought about getting my financial house in order. Granted, that last one is not exactly an accomplishment. But in all my thinking, I have circled in on my biggest financial blind spot: Retirement. There it is — I’ve called it out. It’s a fine first step.
But now what? First, a look at where I stand: I cashed out one 401(k) in my late twenties for a down payment on a house. It wasn’t the dumbest move, but that money would have multiplied by now. After cashing out, I restarted another 401(k), but my contributions were short-lived. I freelanced for a good portion of my thirties, and like many self-employed folks, investing in my business seemed more important than squirreling money away for retirement. But now I’m no longer not thinking about it. 2021 is all about facing the music and moving forward.
I talked to some expert financial planners, expecting some harsh judgment. I got some. Most of it involved outlining the uphill battle that catching up on retirement savings mid-career is going to be. But I was surprised (and thankful) to hear some encouragement, too, like this, from Jeff Winn, Managing Partner at International Assets Advisory: “Sometimes if the mountain looks too big, we’re afraid to climb it. And we forget that it all starts with one step, no matter what.”
With that, here are some steps you should take you’re playing catch up in funding your retirement:
1. Ask yourself why you’re here.
Time to put on your Lebowski sweater and really think. Why are you here, man? If you’re behind in funding your retirement, it’s the first thing you need to address. It’s time to make an honest assessment about the choices you made in the past — no anger, no fear. Did you kick retirement saving down your priority list when you were scraping by in your twenties, only to never get to it? Have you avoided addressing retirement planning because deep down, you know that your current lifestyle is more expensive than you can actually afford — especially if you start socking some money away for the future? Before you course-correct, figure out why you’re in the financial straits you are. “If you don't figure out why you’re behind, whatever changes you try to make for six or nine months are never going to be sustainable,” says Winn.
2. Find out your number.
Now, to do some homework. You’re going to need to find out how much money you’ll need to live comfortably when you retire. If you haven’t ever considered the question, you’re not alone: forty-four percent of people haven’t thought about the amount of monthly income they’ll need, according to a January 2020 survey from the Employee Benefit Research Institute. When you do the work — either with a financial planner or via a tool on a plan provider’s website, prepare to be floored. “Retirement is the largest purchase that you're going to make in your life — unlike what most people think, it’s not your house,” says Steve Bogner, a NYC-based Certified 401(k) Pro. Since we’re living longer, retirement is getting costlier. For example, if you’re looking to live off of 80 percent of a current income of $60,000 for a retirement period of thirty years, that’s $1.44 million. Here’s another sobering number that the Coronavirus has brought to light for many: health care costs are significant during retirement, and rising. A couple may spend $200,000 over the course of retirement on health care costs. As Senator Clay Davis would say on The Wire, “sheeeeeeeeeeeeit. “
3. Go hard on your 401k, if you have one.
Of course, this is a no brainer. If your employer offers a 401(k) and matches up to a certain amount — one hundred percent of the first six percent of your gross pay, for example — you should contribute that amount, no question. Otherwise, you are leaving money on the table. And depending on your age and circumstances (again, consult an advisor), it may make sense to contribute beyond that, up to the maximum amount — $19,500 per year, with $6,500 additional in catch-up if you’re over 50. If you’re freelance or self-employed, you can start a solo-401(k), but of course, your contributions won’t be matched, since the company is you. Damn.
4. Get acquainted with the IRA.
The Individual Retirement Account, or IRA, is a tool to save for retirement with some tax advantages. Check with an advisor to see if you qualify for a Roth IRA. “It’s the best retirement vehicle you can own,” says Bogner. “If you have the opportunity to fund (a Roth), that should always be the first thing that you do. Granted — it’s after tax money that you’re putting in, so that contribution can be more painful. But when that money comes out, you won’t be pay for it.” In 2020, the qualifying limit for a Roth is a $136,000 income for singles, $206,000 for couples. You can currently contribute $6,000 per year, or if you’re over 50, $7,000. And if you, like me, have an old 401(k) kicking around (you can no longer contribute to a 401(k) once you leave an employer) — you can roll it into your IRA. Remember, you’re streamlining, smartening up. Make it as simple as possible.
5. Now that you’re investing again, ignore the market. And ignore the election.
“One of the best ways be smart about investing is to be stupid,” says Winn. When I ask him what he means, he says that it’s easy to get carried away by volatility, as we’ve seen in the Coronavirus-rattled market of 2020. But when you’re investing for retirement, you’re playing a long game. “If it’s down a little bit, if its up a little bit, it comes out a wash. Ignore the current market conditions. Put that in all caps, bold, highlight, everything. And the White House? History shows that markets don't care about elections, other than for a short period of time.”
So now that you’re back in the game, and making up ground, don’t pull up your retirement investment accounts and pore over them nightly, as you would your fantasy teams. You’re better off spending that time thinking of genius new revenue streams — so you can squirrel away more money for when you’re older, cooler, and truly and finally DGAF. Sounds pretty good to me.