Planning for retirement is one of those chores that no one wants to think about but everyone has to do. Fortunately, Seth Cohen is here to help! Seth, an agent of New York Life Insurance Company and a registered representative of NYLIFE Securities LLC, helps folks save for the future. I asked him for some advice for people who, ahem, may have been procrastinating their retirement planning.
So everyone says that you’re supposed to start saving for retirement in your early 20s. But let’s say that was 10 or 12 years ago. What now?
It’s never too late to start saving for retirement! However, the older you get, the more you will need to save since your contribution period will be shorter and your money will have less time to grow. You may also need to re-prioritize your expenditures. You can borrow to pay for college and most other things, but you can’t borrow money to fund your retirement.
I’ve heard over and over from people that I should set up a “529 plan” for my new baby’s college education. But what happens if she doesn’t want to go to college? Or if she happens to get a scholarship?
Each 529 plan has its own rules, but generally speaking, if the money is not used for an approved educational expense, you are likely to have to pay taxes on the gain and pay a penalty as well. There are other good options for college funding that can be used instead of, or in addition to, 529 plans that do not have these types of restrictions. With every option, there are pros and cons. It’s best to speak with a financial professional as early as possible to maximize your options and the time that your money will have to grow.
Any quick and easy-to-remember tips for saving money every month?
Structure is the best bet. First, come up with a household budget that includes monthly savings. Second, set up automatic payments for the most important expenses, such as retirement and college funding, life insurance premiums, and mortgage payments. For the bills that can’t be automatically debited, get in a routine of paying them as soon as you get paid or as soon as the bills come. Lastly, develop the habit of putting a portion of your pay directly into savings as soon as the money comes in. Once it becomes a habit, it is far less painful to do. Speak to your financial professional about options other than traditional FDIC-insured CDs or savings accounts, since those that I’ve seen are currently paying interest at less than the rate of inflation. Remember that there is a relationship between the risk potential and return potential of investments. The higher the return potential of an investment, the greater your risk of loss.
In addition to being a lawyer and financial services professional, you trained as an epidemiologist (someone who studies the transmission and control of epidemic diseases). What are the chances I’m going to outlive my money?
In general, it is increasingly likely these days that people will outlive their money. If I were to run a statistical analysis on that question, I would include two categories of variables as part of the model: those under your control, and those not. Things like market performance are not controllable, but you can mitigate the negative effects somewhat by diversifying and choosing the correct financial vehicle. But risk management techniques do not eliminate the risks of investing. Still, putting away the right amount for as long a period as possible in the most appropriate products available improves your chances of not outliving your retirement assets. This lets you plan rather than react.
Also, remember that your own life is not the only one affected. Do you want to leave something to your survivors in the next generation? If you die before your children are grown and your spouse has to raise them alone, who will fund your spouse’s retirement since he or she will have less available money to save? Two things will give you the best chances of having a successful retirement: getting the right advice, and implementing it now.
Four Questions is a weekly interview column featuring interesting people connected with the Greater Boston Jewish community. Find past columns here. Have an idea of someone we should interview? Email Molly!
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