The well-diversified investor
Robert McDonald, 43, a partner at an assurance, tax and consulting firm in Boston
His nest egg goal: “I would like to retire around 60. That seems like a great age to stop working, and try something different with my life — charity work, golf, skiing, and generally enjoying my friends and family.
I haven’t calculated exactly how much I’ll need in order to make this a reality — but that hasn’t stopped me from preparing. I’ve consistently been socking away money in various accounts for nearly two decades.”
How he’s getting there: “Although I wish I’d started taking advantage of the compounding interest factor earlier, I’ve been consistently saving in an employer-sponsored 401(k) plan since I was in my mid-20s.
For the last 10 or 15 years, I’ve been maxing it out. As a result, I have about $300,000 stashed away in my 401(k).
On top of that, I have a pension-like retirement plan at work, which is special to partners and pays out over a 10-year period.
And I do a little investing on the side — mostly through mutual funds — to make sure my assets are diversified. I’ve earmarked all that money for retirement as well, and it makes up about 10% of my nest egg right now.
Because I make a healthy salary in the mid-six figures, I’m not worried about having enough to fund my golden years. Plus, I’m renting my home now, so I don’t have any mortgage debt.
I also take good care of myself, and have disability insurance to protect me if I’m unable to work for a period of time.”
What the CFP says: “Robert’s cranking. He clearly knows how important it is to diversify investments and start saving as early as possible. Time is truly your greatest ally in preparing for retirement — regardless of your income bracket.
I’m also happy to see that he understands the value of insurance — becoming disabled is a surprisingly high risk we all face, and it can easily derail your retirement savings. So having adequate coverage — either through your work benefits or an individual policy — is key to staying on track.
I do have one word of caution for Robert: High earning typically means high spending — so he’s likely going to need a sizable nest egg in order to maintain his lifestyle throughout retirement.
If he keeps his current 401(k) savings pace, he could reasonably accumulate just under $2 million by the time he wants to retire. But he should keep in mind that, by 60, that money will ‘feel’ like a lot less than it does today because of inflation.
So to make sure he’s saving enough, I suggest working with a financial planner, who can factor in his 401(k), pension, and side investments to ensure he’s making the very best decisions possible now.
But given how proactive Robert has been thus far, I have no doubt he’ll ultimately enjoy the relaxing retirement he’s counting on.”
The pragmatic planner
Jonelle Niffenegger, 45, a training and communications manager in Chicago, Ill.
Her nest egg goal: “My plan is to retire by 65 — and I am more than a third of the way to that mark, leaving me 20 more years to save enough to maintain my current standard of living.
Plus, it means I’ll still be young enough to do all the things I want to do, like escape to a rental in Florida for a few months each winter.”
How she’s getting there: “Saving for retirement has always been a priority for me because I want to be self-sufficient and prepared for the unexpected. I have no children, nieces or nephews, and I’m the youngest of my siblings. So there’s a chance that, as I get older, I won’t have a ‘next generation’ to look out for me — and I want to ready myself for that possibility.
For years, I worked toward this goal by consistently putting away 6% of my salary in a 401(k) — and banking another 6% from my employer match. I was chugging along.
Then about 10 years ago, I started dating a guy who said he was putting away 15% in his 401(k), which I found so inspiring. I thought, ‘Why can’t I do that?’
So when I scored a new gig not long after, I didn’t spend my 15% salary bump — I used it to double my 401(k) contributions. It’s important to me that I keep up this momentum.
While I don’t scrimp on taking trips or doing activities that I like in the name of more retirement savings, I’m a naturally frugal person when it comes to day-to-day living.
For instance, I haven’t upgraded my one-bedroom condo or replaced any furniture for the last five years. As a result, I’ve been able to bank a year’s worth of living expenses in an emergency fund — and build up a pretty hefty 401(k) balance.
Because I’m doing so well, I’ve been thinking of finally selling my 800-square-foot condo and trading up — I want something bigger, with amenities like a garage, central air, and an outdoor patio. I’d like to buy something I can see myself living in for a while — through at least the first several years of retirement.
But to make sure I can afford it, I sat down with a representative from my 401(k) provider to run my numbers — what I have saved now versus what I’m likely to need each month in retirement — and was happy to hear that the advisor thinks I’m on track to reach my goal.”
What the CFP says: “Many people make the mistake of increasing spending after receiving a raise, so I’m glad Jonelle prioritized retirement savings instead. She’ll reap the benefits of that decision down the road.
Since Jonelle’s emergency savings is totally funded, she might want to consider building a taxable investment portfolio outside of her 401(k).
It’s a common belief that if you’re maxing out a retirement account, you’re doing all you can to save for the future — but diverting some cash into a brokerage account can help you accumulate an even bigger nest egg.
If Jonelle needs help choosing her investments, she can seek advice from a Certified Financial Planner™, or research automated portfolio management services online.
As for whether she should buy that bigger condo, she’ll need to do her homework to determine if the extra expenses she’ll incur will jeopardize her retirement progress.
If it doesn’t, and she can save 20% for the down payment, I say go for it — especially if she can pay off a good chunk of the mortgage before retirement. There are plenty of benefits to making a move you’ve been dreaming of, including a better standard of living now and more happiness. Those things matter, too.”