Making the Most of your Money
When it comes to financial planning, many people have questions and doubts to overcome in terms of how they are going to reach their retirement goals. But even if you’re not thinking of retirement yet, having a financial plan and putting it into action is important no matter what age you start or what your plans are for the future. To provide some guidance, John Piscitelli, senior vice president of investments and branch manager of Davenport & Company in Virginia Beach (with offices in Norfolk and Richmond), provides the following advice:
What are some tips for when and how to start saving for retirement?
It’s never too early to begin saving for retirement. One of the most important factors in meeting this challenge is time. If someone’s just getting started but has only a few years left before retirement, it doesn’t much matter what rate of return we can get them—they just don’t have enough time to let their investments grow sufficiently. Conversely, even a mediocre return can get an investor to the finish line if they allow ample time for earnings to compound.
When should someone start thinking about hiring a financial planning expert?
Everyone should have a plan, and it’s never too soon to seek guidance. There are online resources to help one arrive at the numbers, but most will find that it’s worth the extra dollars to hire a pro, especially if they don’t have the time or expertise to do it themselves. Implementing the plan and staying committed to it can be arduous, especially without proper guidance along the way. As boxer Mike Tyson once said, “Everyone has a plan until they get punched in the mouth.” One of the most important roles of the financial advisor is to keep clients from panicking out of the financial markets as those markets zig and zag.
Are there times when a financial planner may not be able to help?
Common sense strategies like paying down debt, keeping track of where your cash is going and maintaining healthy spending habits can all be accomplished without the help of a professional. But planning to meet a significant financial goal is like setting out on a long journey; it helps to have a roadmap, and using a good navigator can sometimes make the difference in reaching the destination safely and in the most efficient manner or not.
Are there different strategies for young people versus older people?
A young person can afford to be more aggressive, as they have the time to make up for any investing mistakes. But reaching retirement doesn’t mean you shouldn’t own stocks. I believe that owning great companies with a track record of regularly increasing their dividends is one of the only ways to receive a rising income in retirement, which, in many cases, will last 20 or 30 years, and where the cost of living may double or triple.
Are there tax advantages people should be aware of when investing?
For long-term goals, such as retirement, growing investments in a tax-advantaged account should result in a much larger bucket to draw from in retirement than in an account where taxes must be paid on the earnings each year. A company retirement plan, if available, is usually the best place to start. If your employer doesn’t have a retirement plan, or if you’ve maxed out the contribution limit, IRAs can also help shelter your retirement savings from taxes. Which IRA is best depends on your eligibility and timeframe.
How important is it for employees to take advantage of a 401(k) plan when offered?
The 401(k) plan is a wonderful tool, allowing employees to invest money on a regular basis to meet their retirement goals. Even when a company doesn’t match contributions, the tax benefits make this an attractive vehicle when compared to investing in a taxable account. The structure also lends itself to investing in a disciplined manner, where investments are automatic, and you don’t have to make investment timing decisions.
What’s the “magic number” when it comes to retirement?
Everyone has a number—the amount of money they will one day need accumulated to generate a retirement income that will last them the rest of their lives. This figure should be “walking around information,” yet most have no idea what that number is for them. “How much must be invested regularly?” and “What rate of return is required to reach my goal?” are critical questions to which every person not yet retired should know the answer.