Retirement Plan Considerations at Different Stages of Life

Miles B. Kessler, CFP®Investment Representative

870 Kipling StreetSuite A

Lakewood, CO 80215-5826Direct: 303-290-8942

Branch: 303-238-5123mileskessler@royalaa.com

January 28, 2016

Throughout your career, retirement planning will likelybe one of the most important components of youroverall financial plan. Whether you have justgraduated and taken your first job, are starting afamily, are enjoying your peak earning years, or arepreparing to retire, your employer-sponsoredretirement plan can play a key role in your financialstrategies.

How should you view and manage your retirementsavings plan through various life stages? Followingare some points to consider.

Just starting outIf you are a young adult just starting your first job,chances are you face a number of differentchallenges. College loans, rent, and car payments allmay be competing for your hard-earned yet stillentry-level paycheck. How can you even considersetting aside money in your employer-sponsoredretirement plan now? After all, retirement is decadesaway--you have plenty of time, right?

Before you answer, consider this: The decades aheadof you can be your greatest advantage. Through thepower of compounding, you can put time to work foryou. Compounding happens when your plancontribution dollars earn returns that are thenreinvested back into your account, potentially earningreturns themselves. Over time, the process cansnowball.

Example(s): Say at age 20, you begin investing$3,000 each year for retirement. At age 65, you wouldhave invested $135,000. If you assume a 6% averageannual return, you would have accumulated a total of$638,231 by age 65. However, if you wait until age 45to begin investing that $3,000 annually and earn thesame 6% return, by age 65 you would have invested$60,000 and accumulated a total $110,357. Eventhough you would have invested $75,000 more bystarting earlier, you would have accumulated morethan half a million dollars more overall.1

That's the power you have as a young investor -- the

power of time and compounding. Even if you can'tafford to contribute $3,000 a year ($250/month) toyour plan, remember that even small amounts canadd up through compounding. So enroll in your planand contribute whatever you can, and then try toincrease your contribution amount by a percentagepoint or two every year until you hit your plan'smaximum contribution limit. As debts are paid off andyour salary increases, redirect a portion of those extradollars into your plan.

Finally, time offers an additional benefit to youngadults--the potential to withstand stronger short-termlosses in order to pursue higher long-term gains. Thatmeans you may be able to invest more aggressivelythan your older colleagues, placing a larger portion ofyour portfolio in stocks to strive for higher long-termreturns.2

Getting married and starting a familyYou will likely face even more obligations when youmarry and start a family. Mortgage payments, highergrocery and gas bills, child-care and youth sportsexpenses, family vacations, college savingscontributions, home repairs and maintenance, drycleaning, and health-care costs all compete for yourmoney. At this stage of life, the list of monthlyexpenses seems endless.

Although it can be tempting to cut your retirementsavings plan contributions to make ends meet, doyour best to resist temptation and stay diligent. Yourretirement needs to be a high priority.

Are you thinking about taking time off to raisechildren? That is an important and often beneficialdecision for many families. But it's a decision that canhave a financial impact lasting long into the future.

Leaving the workforce for prolonged periods not onlyhinders your ability to set aside money for retirementbut also may affect the size of any pension or SocialSecurity benefits you receive down the road. If youthink you might take a break from work to raise afamily, consider temporarily increasing your plan

1 This hypotheticalexample of mathematicalprinciples does notrepresent any specificinvestment and shouldnot be consideredfinancial advice.Investment returns willfluctuate and cannot beguaranteed.2 All investing involvesrisk, including thepossible loss ofprincipal, and there canbe no assurance that anyinvestment strategy willbe successful.Investments offering ahigher potential rate ofreturn also involve ahigher level of risk.

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Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016

Specializing in benefits and retirement strategies for Federal employees.Personalized financial services designed to meet your individual needs and objectives.

Securities and investment advisory services offered through Royal Alliance Associates, Inc., member FINRA/SIPC and a registered investmentadvisor. Insurance services offered through Kessler & Associates, Inc., which is not affiliated with Royal Alliance Associates, Inc.

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contributions before you leave and after you return tohelp make up for the lost time and savings. Orperhaps your spouse could increase his or hercontributions while you take time off.

Lastly, while you're still approximately 20 to 30 yearsaway from retirement, you have decades to ride outmarket swings. That means you may still be able toinvest relatively aggressively in your plan. But be sureyou fully reassess your ability to withstand investmentrisk before making any decisions.

Reaching your peak earning yearsThe latter stage of your career can bring a widevariety of challenges and opportunities. Older childrentypically come with bigger expenses. College billsmay be making their way to your mailbox or inbox.You may find yourself having to take time offunexpectedly to care for aging parents, a spouse, oreven yourself. As your body begins to exhibit theeffects of a life well lived, health-care expenses beginto eat up a larger portion of your budget. And thosepesky home and car repairs never seem to go away.

On the other hand, with 20+ years of work experiencebehind you, you could be reaping the benefits of thehighest salary you've ever earned.

With more income at your disposal, now may be anideal time to kick your retirement savings plan intohigh gear. If you're age 50 or older, you may be ableto take advantage of catch-up contributions, whichallow you to contribute up to $24,000 to youremployer-sponsored plan in 2016, versus a maximumof $18,000 for most everyone else. (Some plansimpose different limits.)

In addition, if you haven't yet met with a financialprofessional, now may be a good time to do so. Afinancial professional can help you refine yoursavings goal and investment allocations, as well ashelp you plan ahead for the next stage.3

Preparing to retireWith just a few short years until you celebrate themajor step into retirement, it's time to begin thinkingabout when and how you will begin drawing downyour retirement plan assets. You might also want toadjust your investment allocations with an eyetowards asset protection (although it's still importantto pursue a bit of growth to keep up with the risingcost of living).4 A financial professional can become avery important ally in helping to address the variousdecisions you will face at this important juncture.

You may want to discuss:

• Health care needs and costs, as well as retireehealth insurance

• Income-producing investment vehicles• Tax rates and living expenses in your desired

retirement location• Part-time work or other sources of additional

income• Estate planning

You'll also want to familiarize yourself with requiredminimum distributions (RMDs). The IRS requires thatyou begin drawing down your retirement plan assetsby April 1 of the year following the year you reach age70½. If you continue to work for your employer pastage 70½, you may delay RMDs from that plan untilthe year following your actual retirement.5

Other considerationsThroughout your career, you may face otherimportant decisions involving your retirement savingsplan. For example, if your plan provides for Rothcontributions, you'll want to review the differencesbetween these and traditional pretax contributions todetermine the best strategy for your situation. Whilepretax contributions offer an upfront tax benefit, you'llhave to pay taxes on distributions when you receivethem. On the other hand, Roth contributions do notprovide an upfront tax benefit, but qualifiedwithdrawals will be tax free.6 Whether you choose tocontribute to a pretax account, a Roth account, orboth will depend on a number of factors.

At times, you might face a financial difficulty that willtempt you to take a loan or hardship withdrawal fromyour account, if these options are available in yourplan. If you find yourself in this situation, consider aloan or hardship withdrawal as a last resort. Thesemoves not only will slow your retirement savingprogress but could have a negative impact on yourincome tax obligation.

Finally, as you make decisions about your plan on theroad to retirement, be sure to review it alongside yourother savings and investment strategies. While it'sgenerally not advisable to make frequent changes inyour retirement plan investment mix, you will want toreview your plan's portfolio at least once each yearand as major events (e.g., marriage, divorce, birth ofa child, job change) occur throughout your life.

3 There is no assurancethat working with afinancial professional willimprove your investmentresults.4 Asset allocation is amethod used to helpmanage investment risk;it does not guarantee aprofit or protect against aloss.5 Withdrawals from youremployer-sponsoredretirement savings planprior to age 59½ (or age55 in the event youseparate from service)may be subject to regularincome taxes as well asa 10% penalty tax.6 Qualified withdrawalsfrom Roth accounts arethose made after afive-year waiting periodand you either reach age59½, die, or becomedisabled.

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