Monday, April 11, 2016

Lessons We’ve Learned About Saving for Retirement

Just because we’re experts on personal finance today doesn’t mean we always knew the answers when it came to our own finances. In honor of Financial Literacy Month, some of our Nerds are sharing money mistakes they made and lessons they learned along the way.

Previously, we featured a few employees’ stories about how they overcame debt.

This week, we’re taking a look at how some of our employees are saving for retirement and key things they’ve learned.

Stay tuned for employee stories around building credit and buying a house in the next few weeks. And be sure to follow us on Twitter and Facebook for more great tips during Financial Literacy Month.

 

Courtney Alev, UserOps pro at NerdWallet

Courtney Final

What were the biggest or most unexpected lessons you learned when it comes to saving for retirement?

“That you aren’t tied to your workplace for retirement savings. When I first started working, I contributed to a work 401(k) that had no match, and I didn’t even know what the investment options were (or what I should look for). Had I learned more earlier, I would have opened up a Roth IRA separate from my 401(k) — or perhaps instead of it — and been able to make better choices with my investments.

“Sometimes it seems like if you can’t contribute a large sum of money, it’s not worth contributing anything at all. But over time, those little contributions will add up to a solid starting point for retirement savings.”

What do you wish you would’ve done differently when it comes to saving for retirement?

“I wish I would’ve started earlier. I did start contributing to a 401(k) in my mid-20s but barely contributed anything and didn’t try to find the best investment options for me.

“I also wish I had learned more about Roth versus traditional IRA contributions, and the different tax implications of each. If I had known more earlier, I would have started multiple accounts with different tax treatments to diversify, given that it can be difficult to predict salary growth and tax bracket over time.

“I also didn’t know that when I rolled over a 401(k) into an IRA (with a brokerage house, not with a robo-advisor) that my investments would sit in cash until I used that cash to buy shares of different funds. I left my entire retirement savings in cash for almost a year, failing to participate in any gains in the market, because I didn’t know better and didn’t even think to ask.”

What is your most challenging point when it comes to saving for retirement?

“How to make saving for retirement feel rewarding in the present day. Just like saving for other goals or budgeting, we know we should save for retirement, but it’s a lot more fun to spend money on something now (like a vacation) than sock it away to hopefully be used 40 years from now.

“I think the best thing I can do is raise my contribution percentage to the highest I can without struggling throughout the month. It’s much easier to save if that money never touches my bank account in the first place.

“It’s also really hard to conceptualize how much money you’ll need, and how it will ever be possible to save that much. Taking into consideration inflation, taxes (for pretax contributions) and any number of other factors, many retirement predictor tools tell me that I need to save an amount of money that’s almost incomprehensible to me in my current financial state.

“When goals/targets seem so far out of reach, it can be much more difficult to make them seem tangible (unlike saving for a vacation, a new car or something more short-term). It can be hard to stay motivated to save with such a long time horizon and seemingly impossible goal, so the key for me is to automate saving as much as is possible.

“It’s also hard to believe that the market will show great returns when the last year has been so volatile (most retirement calculators assume a growth of 6% to 8% annually). But over time, the market has been steadily growing, so it’s important to make solid investment choices and then not fret about gains and losses in the market if retirement is several decades away.”

Jeanie Schwarz, financial planner at NerdWallet 

Jeanie Final

What were the biggest or most unexpected lessons you learned when it comes to saving for retirement?

“Time flies and compounding makes a huge difference! I remember when I was in my early 20s thinking that I could put off thinking about retirement because I had so much time. What surprised me was how quickly that time goes by. It took me almost 20 years, and some courses in personal finance, before I finally got serious about planning for my future.”

What do you wish you would’ve done differently when it comes to saving for retirement?

“I wish that I had recognized and made plans to address the true cost of being a full-time homemaker. Staying out of the workforce impacted my personal savings as well as the credits I accrued for Social Security benefits.”  

What is your most challenging point when it comes to saving for retirement?

“What’s most challenging for me is the tension between wanting to give more financial help to my children versus saving more for my retirement. Because I started later, I need to save a lot more each month than I would have if I’d started in my 20s. This means that I have less available to help my kids pay for their master’s degree programs or buy homes.”

Anything else?

“When I was in my 20s, I thought it was enough to mind my checkbook balance, pay my bills on time, and get the employer match on my 401(k). I never spent much time figuring out how much I might need for retirement. I didn’t think I would ever get divorced and have to worry about supporting myself and my children.

“Thankfully, I was able to get back on track — but it wasn’t easy. It would have been really helpful if I had spent more time planning for my long-term financial goals and addressing the risks before the unexpected happened.”

Heather Yamada-Hosley, content pro at NerdWallet 

Follow Heather @Curious_Heather

Heather Final

What were the biggest or most unexpected lessons you learned when it comes to saving for retirement?

“It’s pretty obvious, but the huge impact of saving early (aka, the magic of compound interest) blew me away when I found out how much more money you put into your retirement in your 20s is worth than the same amount you put in in your 40s or 50s.”

What do you wish you would’ve done differently when it comes to saving for retirement?

“I wish that I’d made maxing out my Roth IRA a priority rather than just setting up contributions to it. I’ve had it since I was 18 and even though I couldn’t afford to max it out every year, I could have the past year or two and didn’t. I’m actually planning to use a recent windfall to max out my contribution for last year before the April 18 cutoff date.”

What is your most challenging point when it comes to saving for retirement?

“Balancing all my retirement savings — 401(k) and Roth IRA — with my budget for contributing, and choosing which to prioritize.

“If you’re already saving for retirement, or are on the path to do so, I think the hardest thing is making sure you’re choosing the right plan for yourself, including how much to contribute and what type of account to focus on.”

Cliff Goldstein, Ask an Advisor at NerdWallet 

Follow Cliff @CliffNerdWallet

Cliff FInal

What were the biggest or most unexpected lessons you learned when it comes to saving for retirement?

“Simple is best when it comes to picking investment vehicles. You can go for the fanciest fund managers and alternative investments, or try to pick the single stocks that will outperform, but your best bet is keeping it simple with some broad-based ETFs — not spending hours trying to outsmart anyone, and spending your time doing things that are more enjoyable.”

What do you wish you would’ve done differently when it comes to saving for retirement?

“Not much, really. Only thing I would change is I would have dialed back my lifestyle when I wasn’t earning as much so I could max out my 401(k) every year in addition to my Roth IRA.”

What is your most challenging point when it comes to saving for retirement?

“Trying to figure out how much I’m really going to need 30, 40, 50 years from now. When you’re in your 20s and 30s, so much in your life is constantly changing that it’s extremely difficult to predict what kind of lifestyle you’ll need to fund decades from now.

“It can be difficult to give more value to your quality of life at a later date than in the present, but you have to assume it will be worth it and you won’t regret it.”

Anything else?

“The best thing I’ve done is get started when I was 18 years old. As soon as I had my first ongoing income, I opened up a Roth IRA and have maxed out my contributions every year since.

“There are a number of small decisions you can make that ultimately have huge impacts, like taking advantage of all the tax-advantaged accounts made available to retirement savers, and things like company matches for 401(k)s, which is the closest thing to free money that you’ll find.”

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