5 Things to Consider for Retirement Savings

Who was this article written for?FoundationFoundationFormationFormation FreedomFreedom

At Allgen, our financial advisors stopped using the term “retirement” because of its implications. Instead, we focus on financial freedom and independence, which may or may not occur in conjunction with regular retirement. Financial freedom is the point when there are enough assets and income streams to no longer depend on day-to-day job for lifestyle sustenance.

When is the right time to think about financial independence savings? Now! When you’re young, your investments have time to grow exponentially through compounding.  When you’re older, you may need to increase your savings rate to achieve your independence goals.  If you’re already financially independent you want to ensure portfolio performance continues to sustain your lifestyle.

Major factors to consider regarding Financial Freedom… Assuming the Foundation steps are complete.

1. Time

Time can either be your ally or your enemy. When you have more time to save, consistently investing small dollar amounts builds wealth through the ups and downs that is inherent of market behavior. On the other end of the spectrum, we are living longer. The duration of a person living after retiring has increased about 32% on average in the last 65 years.¹

A longer retirement due to work downsizing, health issues, or longer life span, puts more pressure on the savings and investments to ensure they last. In order to protect that nest egg, we look into effectively allocating the assets for sustainability.

¹Source: “Growing Older in America: The Health and Retirement Study.” The National Institute on Aging, The U.S Department of Health and Human Services.

2. Emotional Investing

Research shows that two basic urges drive investor behavior: fear and greed. Both of these emotions are typically present during times of investment volatility. Rather than focusing on fundamental and objective analysis, these urges have led the average investor to greatly under perform in markets throughout history. During a 20 year period the average investor earned approximately 5.19% on their investments, while the stock market, as measured by the S&P 500, earned 9.85%.

This average difference of 4.66% every year amounts to a significant difference in portfolio value at the end of 20 years.² The typical reason for this difference is that emotions lead investors to buy and sell at the wrong times. Being aware of this, Allgen focuses on providing the objectivity needed to best manage our clients’ investment portfolios.

²Source: Quantitative Analysis of Investor Behavior, Dalbar, 2015

 3. Lifestyle Amount

Consider the amount of money needed during the Freedom stage. Statistics show that retirees typically require about 70-80% of pre-retirement income to maintain a similar lifestyle. If the average salary in the U.S. is about $53,000 per individual, the typical person would need around $40,000/year in retirement. If we multiply this by the average 18 years of retirement, one will consume approximately $1,000,000 in retirement, assuming a 3% inflation rate.

One will probably need some amount of accumulated assets along with any pensions and social security to provide the Freedom lifestyle. Typically the amount of Social Security benefit or pension isn’t controllable. However, the amount one accumulates is directly related to the amount saved/invested and any gains earned. To hear it another way, check out Allgen’s #MoneyMinute video on the topic of: “How Much do I need to retire?”

4. Vehicles

There are various vehicles that are considered retirement accounts by the government and the financial industry. Among these are 401Ks, Roth 401k’s, IRAs, Roth IRAs, 403Bs, 457s, SEP-IRAs and SIMPLE IRAs. The IRS allows these retirement, or qualified accounts, to grow tax deferred (or certain ones tax-free). Tax deferred and especially tax-free growth is a powerful feature when building a nest egg, as compounding interest accelerates the growth of the portfolio.

Albert Einstein named compounding interest the 8th wonder of the world because of the power it holds. There are typically several investment choices when using the aforementioned vehicles. To know which choices make sense for you will depend on how much time you have until retirement funds are needed and how risk averse you are to volatility. At Allgen we realize it’s not “one size fits all”, so we sit with each client to determine which vehicle(s) and savings strategy fits you best.

 5. Best Plan of Action

Periodic assessments will determine how much one needs to invest or how volatile or “safe” a portfolio should be in order to last during Freedom. Having and following a financial plan allows for proper adjustments when life happens and ensures long term probability of success. A plan determines the amount, the when, the where and the how of investing.

*A few things to note before starting to invest:
  •  Saving for Financial Freedom should begin after the elimination of consumer debt and a fully funded emergency account and proper insurances are in place
  • Emotions and procrastination are the primary causes for poor portfolio performance and delayed Financial Freedom attainment
  • A financial plan is equally, if not more important than the actual returns of your portfolio

We invite you to stay connected with Allgen’s market viewpoints and financial education. We would love the opportunity to meet with you, answer any questions, and discuss your financial plan on the path to financial freedom.


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Advisory services are offered through Allgen Financial Advisors, Inc., a registered investment advisor.

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