Retirement Planning to Help Navigate Your Financial Journey

INTERVIEWER:
Unlike anything before, social media has really quickened the pace. People everywhere are continuously searching for that proverbial pot of gold! And it is easy to get lost in the shuffle. So before you buy that dream-fulfilling item, it is important to think about your own well-being… and pay yourself first.
Hi, I’m Sarah Westin, host of Roadmap for the Future, brought to you by Western & Southern Life.
Today we’re talking about… saving. We have with us the President & Chief Marketing Officer - W&S Agency Group, Troy Brodie, to speak to this notion of paying yourself first. Troy, what does that really mean?

TROY:
Pay yourself first… It is a catchy saying, and it is great advice too. Best of all it applies to all pre-retirement age groups.
Basically, when someone says… “Pay yourself first,” they are telling you to allocate funds for retirement before you start doing any discretionary spending.
By setting aside a portion for retirement, you are helping to shore up your financial future.

INTERVIEWER:
I see, and that’s good in theory… but how realistic is it to pay yourself first? So many of us have a lot of financial obligations.

TROY:
It certainly is realistic, and I think one thing many people find is if they are able to have their retirement allocations handled on their behalf, without actually having to write checks, or transfer funds, they tend not to notice it’s going toward savings. They don’t feel it, and they simply adjust their lifestyles to fit.
Here’s what I mean… A great example of paying yourself first is a 401(k) Plan. Many employers across the nation offer these. The first thing you will want to do is contribute as much as you can, or at least as much as your company will match.
You can make this easier by having your contributions handled directly by the payroll department where you work.
This way, your contributions to your 401(k) are the first thing coming out of your compensation as a payroll deduction – in other words… you’re paying yourself first! Chances are, after a little while, you won’t even miss it.
Now, to be clear… I am not advocating not paying your bills. That would be a huge problem. The key is finding the right balance and making sure you’re putting the right amount toward savings, then with what you actually take home, you pay your bills and purchase necessities like food and transportation. The fun stuff? That comes last.

INTERVIEWER:
Is it really so important to do it in that order?

TROY:
Well, let us look at it. Say you pay your bills first—you are certainly making good on your financial obligations. But should you then start with discretionary spending, the fun stuff… whether shopping online, dining out, or travel?
There is a good chance… when all is said and done, you won’t have much if anything left to put toward retirement. So in that instance, you would have basically put yourself last.
When thinking about paying yourself first, I think it’s important to put things in perspective. Imagine you’re in a movie theatre with your family to see the best new movie out. To your right is your mortgage lender that you owe your monthly mortgage to, to your left is your dentist who you owe a dental bill to and behind you is your car insurance provider who needs to collect your car insurance bill. Suddenly, the movie theatre catches on fire.
Who would you save first?
Your family and loved ones of course! This example puts into perspective the importance of taking care of you and your family before the creditors who are sitting in the theatre with you.

Now, remember, I am not advocating to ignore your bills. You have to pay your bills. But, it is important to prioritize some things over others.
The theory is… You are the most important thing in this equation, and you are placing a priority on saving. So regardless of age… set aside funds for retirement before you do anything else! As we say it “Pay yourself first”!

INTERVIEWER:
That is so enlightening, but is it really worth using the process of paying myself first, if you can only set aside a small amount for savings?

TROY:
Yes… and here’s why… You have to start somewhere. But the key is to start. Allocate what you feel you can toward retirement savings, and if you can, have it payroll-deducted so you aren’t as likely to miss it.
In a few months, or a year down the road, re-evaluate where you stand. Take a look at what you have accomplished in savings, and determine if you can increase your contribution, even a small amount. And the first place to look is your discretionary spending.
Look, I get it… putting money away for retirement is not as exciting as a trip, or a new car. But when you do so before you buy anything else… You really are “Paying yourself first!”

INTERVIEWER:
Troy, thank you for this wonderful insight on this topic!

TROY:
Thank you!

INTERVIEWER:
Think about mobile technology, social media and shopping. These three things have drastically changed over the past 20 years…just like the proper way to save for retirement has.
The way we prepare for retirement – today - is different from that of your parents and grandparents.
Hi, I’m Sarah Westin, host of Roadmap for the Future, brought to you by Western & Southern Life.
With us today is Troy Brodie, President & Chief Marketing Officer - W&S Agency Group, to talk about sources of retirement income. So, Troy… What makes today’s retirement different from that of the past?

TROY:
So many things, Nicole! For starters, let’s talk about longevity. For the most part, people are living longer, which equates to more time spent in retirement.
On the surface, this sounds great, and it is… but we need to think about our finances, and what we’re going to live off of during those added years of longevity. I was reading in an article that the average life expectancy of an American is 78.9 years.  This number is increasing each year, so it is important to think about how the added years will affect us financially.
Another big difference is that our parents and grandparents may have been able to rely more heavily on a defined benefit plan from their employer, and even Social Security. We cannot.

INTERVIEWER:
I have heard talk about a three-legged stool, and retirement. What’s up with that?

TROY:
The old saying was, “retirement income is a three-legged stool”. Making up the three legs were governmental payments like Social Security, employer plans like pensions and 401(k)s, and personal savings.
And there was a time when this was thought to be a solid retirement income plan.

INTERVIEWER:
I see, and I’m sensing you’re speaking of the three-legged stool in the past tense.

TROY:
You’re right – I was speaking in the past tense. With today’s economy, three legs simply may not provide sufficient retirement funds for many people. And that oftentimes is because people have not saved enough on their own for their retirement.
The personal savings leg is even more important as government programs diminish. Nowadays, you simply cannot expect Social Security to make up the difference.
So… Too many people end up adding a fourth leg to their retirement stools, and that amounts to working either full or part-time after retirement.

INTERVIEWER:
But what happens if you want your retirement to look like what most Americans had a generation or two ago… What then?

TROY:
That is entirely possible, but you need to save. And to do that, you need a plan. I recommend starting as early as you possibly can.
Seek out a reputable financial professional to listen to your dreams, someone who will work with you to create a reasonable roadmap to retirement.
Here at Western & Southern, we are dedicated to helping you create your roadmap to retirement and working with you to achieve your dreams.

INTERVIEWER:
Okay, a roadmap. But where do you start, Troy? I seem to hear about all kinds of IRAs out there… how can one know what to choose or where to start?

TROY:
Well, you’re right, Nicole… There really is no one way to save for retirement. For instance, there are a variety of IRAs out there. But they tend to fall into just a few buckets.
I’ll start with the traditional IRA… You contribute to an account, and any earnings are tax-deferred until you access them.
To avoid tax penalties, you need to leave your money in your IRA until you’re at least 59 ½. When you take your money out, you have to pay taxes but the expectation is you will be in a lower tax bracket when that occurs.

INTERVIEWER:
So how does a traditional IRA differ from a Roth IRA?

TROY:
The biggest difference is… the Roth does not allow you to take a tax deduction on your contributions.
Any earnings accumulate tax-free, and unlike traditional IRAs, Roths do not have required minimum distributions. Roth contribution limitations are the same as a traditional IRA, although some income restrictions apply, so it is a good idea to check with a financial professional, or the IRS for more information.

INTERVIEWER:
I have heard about SIMPLE IRAs having something to do with business ownership. Could you talk about that?

TROY:
SIMPLE IRAS are for employers who have 100 or fewer employees. SIMPLE… stands for, “Savings Incentive Match Plan for Employees.” SIMPLE IRAs, typically accessed at retirement, have the potential to accumulate tax-deferred.

INTERVIEWER:
So we’ve talked IRAs… Are there other ways to save?

TROY:
There are all kinds of annuities out there. If you prefer less risk, or if you’re a little closer to retirement age, you may prefer a fixed annuity that offers guarantees. If you’re more comfortable with risk, or if you’re a little younger, you may want to opt for a variable annuity, with earnings tied to the ups and downs of the financial markets.

INTERVIEWER:
But there are more than annuities, right?

TROY:
Absolutely. If you are not averse to risk you could look into more aggressive investing. Broadly speaking— the greater the risk, the greater the potential for reward.
The bottom line is… if you’re really serious about preparing for retirement you need to take it upon yourself to do a great deal of the heavy lifting. The government, and in most cases your employer is not going to do it for you.
And remember, you should not put all of your eggs in one basket.
Diversification is a term used to describe spreading out your retirement savings strategy among a variety of vehicles with varying risks and reward potentials.
The combination can change for most people over time, so it is important to have a relationship with a financial professional who understands your needs and will re-visit and re-calibrate your plan to fit your changing situation over time.
Here at Western & Southern, we are committed to helping you understand their needs and create a personalized plan to fit their lifestyle.

INTERVIEWER:
Diversification and recalibration…and professional guidance. You have truly shed some light on retirement income sources.
Troy… thanks for your time today.

TROY:
Thank you!

INTERVIEWER:
So you are thirty something and just getting your feet on the ground, career-wise. Perhaps you’re starting a family, buying your first home or simply enjoying a carefree life.
Hi, I’m Sarah Westin, host of Roadmap for the Future, brought to you by Western & Southern Life.
And today we’re talking about why people in their 30s should think about preparing for retirement. We have Troy Brodie, the President & Chief Marketing Officer - W&S Agency Group, here with us to share some of his thoughts.
So Troy, why is it important for people so seemingly young to be concerned about retirement?

TROY:
Well, when you’re in your 30s, retirement can feel like a lifetime away – I know, I’ve been there!
This is when a lot of people are starting families, with all kinds of life and financial priorities hitting them. But you cannot put your retirement on a backburner. You just can’t.
If you are in this age group, it is important to understand that the decisions you make today will affect where you stand, financially, tomorrow. And if you wait, say five or ten years, you’re going to need to save at a much more aggressive rate in order to catch up. The time to start is now!

INTERVIEWER:
I see your point… So let’s get into some specifics for 30-somethings.

TROY:
Well, for starters, you have the benefit of compounding… meaning your money earns money on itself. Here’s a really simple example… You have your principal, the initial sum you are saving. Keep that in a fixed savings vehicle for a year where interest is credited, thus increasing its overall value.
Now, at the beginning of year two, you’re able to earn interest again, but this time it’s on the principal – that initial sum – as well as the interest it earned the year before.
Imagine leaving this account alone for ten, twenty years or more without adding another penny… Through compounding alone, it has the potential to grow considerably.
Now it’s important to start saving early and continue to contribute, but I hope this simple example helps to illustrate the power of compounding. The more time you have, and the more you continue to contribute to your savings vehicle, the more you will be able to leverage the notion of compounding.
This allows you to save more and may ultimately help create a more comfortable retirement.

INTERVIEWER:
Yes, I get it… So how does one get started?

TROY:
An easy way is to take advantage of your employer’s 401(k) Plan, if available. Many employers offer a 401(k), some also offer some type of matching program.
So you may want to think about contributing as much as you can to take full advantage of any matching offers. Look, this is free money, and if you have your contributions deducted from your pay… you may not even notice.
And the icing on the cake is that… 401(k) contributions may reduce your income for tax purposes.

INTERVIEWER:
Is there anything more that people in their 30s could do to add to their retirement savings?

TROY:
The short answer is, “As much as they possibly can.” You can’t expect the government to swoop in and save you when you want to stop working.
So in addition to what you are able to save through your job, you will probably need to save on your own as well. To do this, consider seeking guidance from a reputable, licensed financial professional.
30-Somethings do have options… a Roth IRA comes to mind, but that’s just one approach and it depends on the person’s situation.

INTERVIEWER:
Say you’re putting away a sum every month, which sounds great. Then you get a raise. Even better, right? But this is when I start to hear about “lifestyle creep.”

TROY:
Yes, but when you get a raise, it’s important to make sure you’re giving your retirement savings a raise, as well. As tempting as it may be, this is not the time to make extravagant purchases. Instead, live within your means, with occasional splurges, but make sure you’re continuing to up the ante with your retirement savings program and this will help you to avoid lifestyle creep!

INTERVIEWER:
So what is the bottom line…?

TROY:
The bottom line is to start now, even if it may seem as though you are not saving much. Start to establish good, healthy savings habits now. And keep in mind… Time plays a huge role in your ability to create a comfortable retirement, so let’s get this train out of the station right now!

INTERVIEWER:
Troy… thank you for your time and expertise today.

TROY:
Thank you!