Your Retirement Planning Journey, Part 2: Ups and Downs on the Road

Once you are well-established in your professional career, you may have accumulated savings in your retirement accounts. The specific number will vary for each individual or family, of course. Each of us will have different needs in retirement to meet our lifestyle, which is why it’s crucial at this time to have and keep in regular contact with a wealth manager to discuss your evolving needs and plans.

For most of us, the trek to a comfortable retirement is unlikely to go without a few hitches. Life is full of events that impact finances and how much we’re able to save. But nearly every obstacle that gets in your way can be surpassed with foresight and strategies that preserve your retirement goals.

It’s not all doom and gloom when major life disruptions appear. Ideally, you’ll have some unexpected moments that allow you to adjust your savings plan for the better.

For example, you or your spouse may receive a promotion and/or a hefty raise that gives you flexibility to increase the amount you save with each paycheck. Just be sure you’re doing so in a tax-advantaged way, such as maximizing retirement account contributions.

For an employer-sponsored 401k savings plan, the maximum annual amount permitted for contributions is $22,500 as of 2023 (along with a $7,500 catch-up contribution for those over 50). If an employer has a matching contribution (up to a certain percentage), there may be a specific amount you need to contribute to take full advantage of the benefit.

It is also recommended to maximize tax-deductible contributions to personal Individual Retirement Accounts (IRAs). Note, however, that there is a limit to deductible contributions you can make to both traditional IRAs and Roth (post-tax) IRAs, with phase-out depending on income and whether your or your spouse’s employer offers a retirement plan.

Keep in mind your retirement accounts during any life event that positively changes your financial outlook, including receiving an inheritance, children leaving daycare, selling a property or business, and paying off student loans or other large-scale debts.

The Downs

Events that negatively impact your finances, especially if they are long-term or recurring costs, often are a reason to rethink your monthly budget and, potentially, your contributions to savings accounts.

Not all of these events are intrinsically bad. Children, for example, are among the largest expenses a family can incur. Daily childcare, extra food, clothing, education and much more will add thousands in annual expenditures. If you’re still relatively early in your retirement planning journey, the urge to decrease how much you save per pay may be strong, at least until you’re through the overwhelming “new parent” stage.

Other costly major events might include healthcare issues, purchasing a new home or performing renovations, job transitions, vehicle purchases or problems, recessions or any of the myriad occurrences that disrupt the best-laid plans. Through any of life’s rough patches, saving for retirement — something that may be decades away — might be the first thing to go on the backburner. However, cutting down contributions may necessitate playing catch-up in future years, and some people who pull back on their savings neglect to ever return to the original plan.

Staying the Course

Overcoming challenges are a significant component to retirement planning. Here are some quick tips for maintaining your plan during trying times:

• Know your expenses and keep a budget: Your retirement plan is not something you want to adjust much, unless you’re increasing how much you save. So, if you’re looking to save on expenses, keep track of where your money goes each month. There may be other items that can be temporarily trimmed back or cut, such as subscription services you don’t frequently use or restaurant trips. Keeping a detailed budget that you regularly monitor — and follow — will give you a better idea of what is truly important to you and your family.
• Understand market risk: A difficult period in life may not be the best time to make riskier investments. If you personally manage your investment accounts, consider a more conservative strategy as you weather the storm.
• Your insurance situation: Are you adequately covered? Once it becomes affordable for your lifestyle, robust insurance policies that cover your and your family’s life, home and potential for disability are crucial to have, not only to assist in the event of tough times and tragedy, but as another financial benefit for retirement. The cash value from a whole life policy can supplement retirement income or pay for future healthcare expenses, or the policy may enable heirs to avoid costly estate taxes and other final expenses.
• Meet with the pros: When your financial life changes — for good or bad — it’s time for a chat with your wealth manager to discuss your situation. An experienced professional likely has seen it all, so they’ll have the experience and strategies that enable you to maintain your savings plan through whatever comes your way.

To learn more about your retirement planning journey and managing its ups and downs, connect with the experts from F.N.B. Wealth Management, and check out Your Retirement Planning Journey, Part 3.