As sure as the sun will rise, one day we will all start to slow down. When that day comes, we plan to build some sort of reserve that can help us meet our day-to-day needs and even give us some joys and comforts we have become accustomed to throughout our lives. Working in finance, I have never said it is too early to start talking about savings and I have often seen people far down the line who think it is too late. The truth is, there is only one time to start planning for your future, and that day is today.
In 1935 President Roosevelt passed the Social Securities Act into law to tax people into saving for a lifetime income as people started living well past working ages. Half a century later congress passed the Revenue Act of 1978 to provide tax benefits for companies to help invest in their employees. The 401k plan was born, and it incentivized people across the country to invest in the stock market, a daunting concept for many.
Fast-forward another half century and here we are. In almost one hundred years we have been culturally indoctrinated to feel some sense of ease knowing when we make it to 62 spins around the sun, we can get that set check in the mail like clockwork. But is it enough?
For many, they realize it is not. So, they pump as much as their employer will allow into a retirement plan. And then, when you start to draw on it, a nice chunk is taken out for Uncle Sam. So that nest egg isn’t as large as the numbers reflect each year. Death and taxes, it’s certain.
But some credit deserves to be given. Although it took a long time for the government to incentivize a blend of these types of retirement vehicles, the blend is truly what is key. The one thing no one is teaching people is how to most efficiently spend down what they have in their nest eggs. This concept in finance is known as the mouthful called Linear Asset Distribution.
At some point in many of your savings and retirement vehicles you are going to hit a point where a “minimum required distribution” is imposed as per the gentle request of the IRS. At which point, whether the money is needed by you or not, you will have to start drawing from it. The consequence of this draw is often difficult to consider without the aid of a financial professional. Furthermore, calculating the right balance to save “how much” and “in what” might seem tedious in the short term but have vastly different effects on decades to come.
It has been almost a hundred years since Social Security was created. It has been about half a century since the 401k was introduced. Today a new and better approach must be taken to help secure our futures, our comfort, and happiness. Start saving and make sure you’re saving in the right places. It’s true money doesn’t buy happiness, but life can be a heck of a lot harder without it.
MSgritto@cfsllc.com
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