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How Much Should I Save?

Well, that was a heck of a Derby! I have to say, never before can I recall a 10-day period where I got to watch pro soccer, pro baseball, the NBA playoffs, the start of college football, the Kentucky Derby and tonight, the start of NFL football! A couple months ago, I read an article speculating that September could be the ultimate sports month, and it appears they were spot on. 

One thing Labor Day usually brings with it is the changing of seasons when most of us have come home from that last family trip, we’re back in the office catching up with colleagues after summer vacations, and all of us in Kentucky buckle down to get everything done before October, when it’s Keeneland time. I know a lot of you trying to jumpstart your September productivity don’t even feel like you had a summer vacation, and you’re not fully relaxed. I get it. Unfortunately, I don’t have a magic potion that will turn you into a super-producer, although Starbucks might. 

This month, as a way of helping everyone refocus on the remainder of the year (is 2020 over yet?!), we’re going to take some time over the next few weeks and talk about some important reminders regarding your employee benefits, as I know for a number of you, that’s on your agenda. If you do have questions about your benefits, please, let us know so we can address them. 

Today, I want to start with a couple of questions I’ve been hearing from folks lately. First, several clients have asked me that age old question: “Exactly how much do I need to save in order to retire at 65?” Now, this question typically comes from those client families who are the most organized and the most focused on saving for retirement already. These are the 20 percenters (remember the 80/20 rule?). These folks are usually frugal, and they want a set monthly amount to save, just as they know how much their mortgage or car payment is each month. They want to write a check and be done. 

It would be great to be able to say, “Sure, if you save $32.96 each month, you’ll retire happily at 65.” However, things happen along the path such as market volatility, inflation (or lack thereof), and other factors that can significantly affect the best-laid plans. If you ask Google how much you need to save, the answer usually comes back along the lines of, “as much as you can.” Any calculator will tell you that the more (and the earlier) you save, the better off you’ll be 20 or 30 years out. But the problem is that, unlike that mortgage, there’s no guarantee that if you make X number of payments, you’ll have X number of dollars at retirement. 

Now the question becomes, “Okay, so if there’s no guarantee, why would I put money into the stock market at all as I save for retirement, college, or my mid-life crisis sports car and boat?” The answer to that is simple: investing in the stock market allows you to participate in what some have called the greatest wealth creator of all time. It’s not perfect, and some years it goes down. But when you invest in the US stock market, you’re making a bet that American businesses will grow and innovate over the timeline you need your money to be growing as well. With that said, you probably don’t want to put money in the stock market that you plan to use in less than two years. 

So, now you’re thinking, “Dave, just tell me how much I need to save.” Thankfully, our team does use eMoney software that allows us to build in funding of your future needs on a monthly basis, compound that over time, and back that into your current savings goals. We then can make a recommendation for you based on those numbers. You might not like the number. But we’ll help you come up with it. If you’d like us to help you come up with a savings number that works for you, please, let our team know. 

Article by David Smyth, CLTC, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.

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