By Jasmine Gladney

This summer, I had the opportunity to intern with Landaas & Company. Throughout my internship, I shadowed different investment advisors, and there was a theme of retirement.

Retirement seems far away. I am 23 and just beginning my professional career. But I realize I should start planning now. The question is how?

Investing is a great way to grow money, especially for retirement. But I learned there are a couple of other considerations. Marc Amateis, vice president and investment advisor at Landaas & Company, emphasized having a safety net. He told me that it is a good idea to have emergency savings for unexpected expenses because it will allow me to leave my investment portfolio alone and let my money grow without tapping into possible gains.

Sources vary on the amount you should set aside because it depends on the economy. Some, such as the Financial Industry Regulatory Authority, say aim to have three to six months of expenses set aside. Others say six to 12 months to avoid using credit for emergencies. Additionally, Mr. Amateis pointed out that knowing your risk tolerance is extremely important. Many times, investors want the gains that come with a riskier portfolio, but they have the risk tolerance of a conservative investor.

When it comes to retirement, Brian Kilb, executive vice president and chief operating officer of Landaas & Company, told me two things:

1. Know how much you need in order to retire.
2. Start saving now.

To determine how much you need to retire, the first step is to figure out what annual amount would allow you to live comfortably.

The second step is figuring out how long you plan to be working, which assists with setting retirement goals. At its website, the Social Security Administration calculates your life expectancy and breaks down the percentage of your full retirement benefits by age.

According to the Social Security life expectancy calculator, if I were to retire at 67, the normal retirement age, I would leave myself with roughly 22 years of retirement before my life expectancy of 89.

Both factors – annual income to live comfortably and when to retire – are subject to change. Say I plan to make about $50,000 right out of college. That would allow me to pay off any loan debt and cover monthly expenses and still leave me with spending money.

However, things change over time. I might get married, have children, buy a new car, buy a house, etc., and $50,000 may not seem like enough. Additionally, I could decide to retire at 62, the earliest I may begin to receive Social Security retirement benefits. As you get older, you might decide to retire later because you are not as financially stable as you thought you would be. Or, if you are married, it might be financially beneficial if both of you space out your retirements.

For the sake of this example, let’s just say that I save $10,000 annually with the help of an employer retirement plan and savings from my income. If we assume an 8% historical rate of return and a 3% inflation rate, by the time I am 67, I could have close to $4 million dollars for retirement. If I withdraw 4% or 5% of my portfolio every year, my retirement fund would provide me about $160,000 a year before adjusting for inflation.

Key takeaways from what I have learned:

• Start saving early. Time is on our side as young adults. By saving a percentage of our income, we are developing a healthy habit that will allow more of our money to grow over a longer period at compounded rates. Also, it’s important to have an emergency fund for unexpected expenses or job loss.
• Invest in a retirement plan. This can be through an employer plan, such as a 401(k) or by opening a traditional IRA. With a 401(k), a percentage of pre-tax earnings goes into retirement investments, and many employers match a small percentage of that contribution. All of this money grows tax-deferred, meaning that the money in the plan keeps growing and is not taxed until taken out. At least contribute enough to qualify for the employer’s maximum match; otherwise, you are leaving free money on the table. An IRA has similar tax benefits. A Roth IRA uses after-tax contributions, so there are no taxes on qualified distributions.
• Know what your retirement goals are. Start by figuring out at what age you want to retire and the annual amount that would allow you to enjoy retirement.
• Pay off your debt before you retire. Retirement is more secure when you are debt-free.

Although retirement seems to be in the distant future, especially for a 23 year old, it is never too early to start planning. My experience this summer has taught me that it is better to plan and prepare for retirement early than scramble closer to my retirement age. Life happens, and I know that I will have to make some adjustments to my plan, but I have attained the knowledge needed to do so.

Jasmine Gladney was a finance intern at Landaas & Company. She is a senior at Marquette University, graduating in December with a double major in accounting and international business.

(initially posted Sept. 23, 2016)

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