As a young professional in my late 20s, what else should I be doing to make the most of my money and save for retirement?
I am a young professional in my late 20s. I have no student loans and my vehicle is paid for. I have a 403(b) plan through work and contribute 10 percent of each paycheck to it. My employer does not match these contributions. I am saving about $1,000 a month and placing it in my savings account, which now has about $35,000. I recently moved $15,000 of that money into an online savings account for the higher APY to have as a safety net.
I am very confused by the financial world, but I want to make sure I am making the most of my money and savings. Is there anything different I should be doing with my money to better save for retirement?
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You seem to be doing well with your overall financial plan. So, while the financial world is confusing, you are doing a good job of conquering it. I will assume the $35,000 is sufficient for an emergency fund for yourself, and at your age 10% is likely a good target for saving for retirement. The next step would be to look at your other life goals and begin to prioritize your near-term lifestyle desires along with long-term goals.
Save For The Next 10 Years
Start by focusing on the big, expensive events you want to accomplish over the next ten years. For many in your age range, these could be investing for a home down payment, a wedding, starting a business, having children, traveling, or other major goals you might have. Then figure out how much you would need to save to accomplish each goal and develop an investment allocation appropriate to each goal. These goals will be saved for in a traditional investment account, so you won’t have the same tax advantage as your retirement accounts.
Make sure you are not OVER-saving to retirement
For the vast majority of the population, the idea of saving too much for retirement is ridiculous. You may, however, be one of the few who might be.
You can use a Time Value of Money calculation to project your future retirement balance based on your desired retirement age, expected return, and desired retirement lifestyle. A financial adviser can also conduct a Monte Carlo simulation which will project tens of thousands of possible future returns to show you the range and probabilities of possible retirement-date balances.
If you find your savings rate is way above your needs for retirement, you may consider diverting some of your retirement contributions to achieve more of your shorter-term goals. Warning: don’t reduce your retirement contributions unless you know for sure you are over contributing or have received the advice of a professional financial adviser.
Investigate Your 403(b) [the nonprofit 401(k)]
You also should make sure the 403(b) investments are invested in an appropriate way for your age and risk tolerance. 403(b) plans are often filled with annuities, which have incredibly high fees and are generally not appropriate for younger investors. If the 403(b) has poor investment choices or high fees, consider maxing out an Individual Retirement Arrangement (IRA) account before contributing to the 403(b) beyond any match.
Consider an Adviser (but Beware product sales reps)
You should also think about getting a financial adviser to help you navigate this journey and make the financial world a little less confusing. A good fiduciary and fee-only financial adviser can help you discover and plan for more of your goals, be an accountability partner and sounding board, and see opportunities specific to your situation. Be careful when seeking an adviser, though, as most are commissioned salespeople masquerading as advisers.
We offer our Financial Launch program, which is designed specifically for people in your age bracket. Launch offers you access to a sophisticated online financial planning platform along with personal guidance from your own fiduciary financial planner.
Be Confident in Your Financial Knowledge
And don't feel bad about the financial world seeming confusing because, unfortunately, we have a very complex financial system. As an example, when I did the CFP coursework, the book for the Intro class was over 800 pages long. The fact you are already successfully doing the typical financial advice and still find finances confusing means you understand money enough to see the complexity beyond the basics.