Setting Up a Retirement Investing Plan

As a new lawyer, you may have a busy and demanding schedule that leaves you little time or energy to think about your retirement. However, retirement planning is not something that you can afford to postpone or ignore. The sooner you start saving and investing for retirement, the more time you will have to grow your money and achieve your retirement goals.

Here are three basic steps for setting up a long-term retirement investing plan that can help you secure your financial future:

Determine your retirement goal number.

The first step is to determine how much you need to ultimately save for retirement. This number depends on many factors, such as your current age, expected retirement age, desired retirement lifestyle, life expectancy, inflation, taxes, projected rate of return on your investments, and social security benefits. Once you’ve collected this information, you can use online calculators or work with a financial planner to estimate your retirement needs and gap. Review your retirement savings goal periodically and adjust it as your situation changes. Use this goal to drive how much you invest each paycheck over time.

Fund your available retirement accounts.

The second step is to get money moving automatically into your available retirement investment account(s) every pay cycle or month. There are some standard options available through most firms, such as a 401(k) or 403(b), and accounts you can open on your own, like traditional and Roth individual retirement accounts (IRAs). The main difference between traditional and Roth contributions is when you pay taxes on them. Traditional contributions are made with pre-tax dollars, meaning you get a tax deduction in the year you make the contribution, but you pay taxes on the withdrawals in retirement. Roth contributions are made with after-tax dollars, meaning you pay taxes on the income in the year you earn it, but you enjoy tax-free withdrawals in retirement. Compare your eligibility and the features of each available account, then build a funding strategy that suits your income, tax bracket, and retirement goals. Be sure to take advantage of any employer match or contribution that your employer offers, as this is essentially free money for your retirement. Your ultimate goal should be to contribute as much as you can to your retirement account, up to the annual limit, and increase your contribution rate as your income grows.

Select your starter investment(s).

The third step is to select the investments inside your retirement account you would like to purchase whenever money is contributed. Employer-sponsored plans usually provide a list of 20 to 30 mutual funds to choose from, with each containing a combination of stocks, bonds, or both depending on the type and objective of the fund. Mutual funds help you diversify your portfolio across different asset classes (e.g., stocks and bonds), sectors, and regions to reduce your exposure to any single market or company.

Index funds are a type of mutual fund that track the performance of a specific market index, such as the S&P 500, the Dow Jones Industrial Average, or the Nasdaq Composite. Index funds are popular for new investors because they offer low-cost, diversified, and passive exposure to the stock market, without requiring much research, analysis, or active management. Index funds also tend to outperform most actively managed funds over the long term, especially after accounting for fees and taxes.

As you consider which investment(s) to start with, take into account your personal risk tolerance, time horizon, and retirement goals. Generally, the longer your time horizon and the higher your risk tolerance, the more you can invest in stocks, which offer higher returns but also higher volatility. As you get closer to retirement, you may want to shift some of your assets to bonds, which offer lower returns but also lower volatility and more stability. You may have to rebalance your portfolio annually to maintain your desired asset allocation and risk level. Target-date funds are a default investment vehicle inside many employer-sponsored plans that do this for you on a pre-determined glide-path.

Setting up a long-term retirement investing plan is not as complicated as it may seem.

By following these steps, you can start saving and investing for your retirement and enjoy the benefits of compound growth and tax advantages. A long-term investing plan can help you secure your financial future and achieve your vision for retirement.

To discuss your investing questions, schedule a free call with an Accredited Financial Counselor^® through AccessConnex by AccessLex^℠.