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I wasn’t thinking about retirement savings at the beginning of my freelance career in my early 20s. I was more concerned about things like mounting credit card debt, locating the best discount grocery store, and juggling part-time gigs to make my side hustles work. Savings in general, and especially retirement savings, was a luxury I couldn’t afford.
And then, with a blink of an eye over the next decade, I turned 30 without a penny saved toward my golden years. It struck me one day, as most transitions into adulthood do, that I was not properly setting myself up for a future of prosperity. And that’s when I turned to the help of a professional financial advisor.
I met Keith Fichtner, financial advisor for Edward Jones, when he did a financial presentation at the coworking space I’d been using in Missoula, Montana. With my recent retirement revelations, and a couple of successful years as a full-time travel writer, his presentation piqued my interest, and I followed up with a meeting.
Fichtner’s advice for me the first day we met is the same advice he gives anyone who walks through his door: “The first step is understanding your financial situation,” Fichtner re-emphasized during a recent in-person meeting at his office.
Understanding your financial circumstances includes tallying up your monthly expenses, current debt and discretionary income. “It’s getting the whole financial picture out there first. Funding the retirement account and recommending appropriate investments — that is the easy part of my job,” said Fichtner.
I was quickly approaching the age of 31 at the time I first met Fichtner — my freelance income was steady, my debt thankfully diminishing, and I could make monthly contributions to my future self without shopping exclusively at the discount grocery store. With that information at hand, Fichtner helped me start a game plan for my distant retirement.
My first question was, what’s the magic amount I should be aiming for if I want to retire around age 65? And like most financial forecasts, the answer depended on several approximated values. Fichtner mentioned the goal number used to be a million dollars, but forces like inflation and personal goals for retirement may increase that for many individuals. Some, therefore, use a retirement calculator to estimate their future cost of living.
The feeling of being late to the party immediately struck. As a self-employed individual, a Traditional IRA or a Roth IRA were my most logical choices for a retirement savings account. Ideally, I’d make contributions to max out the $6,000 per year limit, or $500 per month when broken down into smaller monthly amounts.
Fichtner calculated for me: If I could make the maximum yearly contributions starting at the age of 31, with an average 6% investment return and 3% rise in inflation, I would be sitting on approximately $700,000 (pre-taxes) with a traditional IRA when I turned 65. (You can use a compound interest calculator to calculate this hypothetical value for your own situation.)
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While $700,000 is a considerable chunk of change, it struck me that my future retirement fund balance was considerably far from that million-dollar retirement number Fichtner introduced — and with inflation, who knows what $700,000 will be worth in the year 2054.
And what’s more, while I was finding success in freelance writing, I had yet to sell my best-selling novel or receive a Netflix adaptation for my work. So with my limited budget, I felt more comfortable starting with a smaller monthly contribution. I began putting aside closer to $250 per month, or half of that $500 goal. And with the same interest and inflation as noted above, that amount of monthly contributions would put me closer to $320,000 by my 65th birthday.
Upon first crunching those numbers, I had the eerie sensation of one of those dreams where you’re always running but never able to catch up. Even though social security will pad my pockets when I reach my 60s, it suddenly became a real possibility that I may not have enough funds for the traveling lifestyle I hope to continue once my hair is a striking silver.
Fichtner, seeing the panic in my eyes, met my calculated worries with calm.
“Something is better than nothing at this point,” he reassured me. “There are other retirement vehicles out there and ways to catch up.”
Some of those methods include utilizing my small business to set up a Simplified Employee Pension Plan (SEP) or a one-person 401(k) plan. And when I turn 50 years old, Fichtner explained, I can start making catch-up contributions with an increased $7,000 annual cap on my IRA contributions, compared to the normal $6,000.
So, stepping aside from the anxiety of imagining my life at 65, we started focusing on more relatively short-term goals. Specifically, what I could begin to contribute in order to exit my 30s with more retirement security than when I entered. And with my budget to comfortably contribute $250 per month, we went from there.
As things are right now, by the time I turn 40, I expect to have approximately $46,000 in retirement savings. I’m not set up to become a millionaire, but much like my freelance career did in the past ten years, I trust that my retirement abilities will also compound into something greater.
Besides, as Fichtner stated, something is better than nothing, and $46,000 is a heck of a lot more than what I started with.
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