Comfortable Retirement Hinges on Early Savings

Of the number of workers between the ages of 31 and 40, 70.4 percent work for an organization that offers an employer-sponsored retirement plan, but only 56.1 percent are participating in such plans, according to a study published in 2006 by the nonprofit Employee Benefit Research Institute.

Only 38.2 percent of those who work for a company that offers a 401(k)-type plan participate. And this year’s class of 40 Under 40’s collectively scored a 5.6 out of 10 in terms of being prepared for their retirement.

“Financial planning is a lot like dieting,” said Scott Alaniz, certified financial analyst with Boston Mountain Money Management. Alaniz and his partner, CFA Joe Chumbler, started the investment company earlier this year.

Alaniz said about 95 percent of diets fail, and a similar number of financial plans fail. This is because many people are after a single product that can solve all of their problems in one easy step.

“Individuals spend billions every year on the latest diet fads and books, and individuals also spend billions on financial planning and investment services which may not be effective.”

Three keys to saving for a comfortable retirement are to live within one’s means, to save early and consistently and to make investments with a prudent, professional financial planner, Alaniz said.

For some young professionals just entering the workforce, the temptation to spend more can present obstacles to saving.

“Save until it hurts,” said Troy Kestner, a certified financial planner and vice president at Arvest Asset Management in Fayetteville.

Chumbler advised young workers to contribute the maximum amount possible into their 401(k) accounts.

Putting money into a 401(k) “saves taxes today and grows tax-free,” Chumbler said. “It’s the smartest thing to do, even if you have to drive your car that’s already paid for, it will pay off in the end.”

Debt can be detrimental to a financial plan, he said, so it should be minimized with the exception of a mortgage.

“If you’re maxing out your 401(k) and you still have money left, it’s a good idea to put it into an IRA,” Chumbler said.

Saving money early is vital. To end up with $1 million in time for retirement, a 30 year-old and a 40 year-old would need to make one-time investments of $35,000 and $90,000, respectively. A 50-year-old would have to invest $239,000.

“That’s why you start early,” he said.

Jim Ed Summers, a CFP and senior vice president with Arvest Asset Management in Fayetteville, echoed that assessment.

“We’ve seen a lot of examples of people starting early with less money, who end up faring better than somebody who started later with more money,” he said. “The eighth wonder of the world is compounding interest.”

A good basic rule is to save at least 10 percent, regardless of income level, Kestner said.

Summers and his colleagues provide a retirement roadmap that is specific to each individual in terms of investment.

They assess people’s age, income level, risk parameters, saving habits and any variables such as illness or injury to determine the best course for retirement investments.

Chumbler and Alaniz emphasized a need for diversification of investments, but said some mutual funds take this to unnecessary lengths.

“You only need 15 to 25 different stocks in different industries to be diversified,” Alaniz said.