When you’re in your early to late 20s, you may hear older cops talking about retirement in roll car, lunch or even after a call.
If you’re anything like I was back then, there’s a good chance you won’t pay much attention to these conversations when you’re fresh out of the police academy (Read: 10 Rookie Mistakes to Avoid) and just getting started with your law enforcement career.
Le’t face it, retirement in your mind seems like so far into the future, and planning for it isn’t a priority. Well let me explain why it’s never too earlier to start planning for your retirement.
Even if your agency offer a strong pension plan there’s no guarantee that things won’t change by time you are ready to retire. Detroit PD is a perfect example of how things can change drastically as they were forced to make some major changes, which included cutting pension and health care benefits for retirees and reducing pension benefits for current workers.
Depending on your employer and/or pension fund as a retirement safe haven can be a mistake because you don’t know what the global markets will look like in 20 or even 30 years. I urge every police officer in their 20s to start making additional financial moves to strengthen their financial future even if you have a strong pension.
If you’re like most Americans, you likely feel that you need to catch up when it comes to retirement savings. This probably means you’re ahead of the game in terms of tending to your savings, but you may also be wondering: what else can I do to ensure my financial future is secure?
Here are five ways you can make the most of your time in your 20s when it comes to saving for retirement. Your future self will thank you once it’s time to take advantage of your retirement funds.
It’s great that you’re already thinking about retirement and how you and your family can maintain your standard of living once you’re no longer a full-time police officer (Read: Am I Too Old to be a Cop). However, you shouldn’t compromise your present financial security for your future retirement plans.
Bone Fide Wealth president Doughas A. Boneparth says that it’s important for young people to “earn the right to invest” which means young professionals need to search for consistent jobs that provide regular pay before starting the process of saving.
You’ll also need to set up an emergency savings fund for the unexpected things in life that will happen on the road to retirement. For instance, if you have medical expenses that you weren’t anticipating for yourself or a family member or need to have your car repaired right away so you can get back and forth to work, the emergency fund will come in handy.
Boneparth shares that while this advice may seem counterintuitive in today’s economy, having an emergency fund can make a huge difference in your family financial health and your peace of mind.
He also asserts that if you keep your current full-time job and the S&P decreases by 30%, this could present a buying opportunity for your family for years to come. However, this depends on if you actually have the funds to invest, which is why you should take strategic steps toward retirement.
You can do more with your 401K plan than simply signing up for the plan and getting your agency to match your contributions. According to the IRS, you can contribute up to $19,000 to your retirement account this year, and the limit will likely increase next year and in the coming years.
Maxing out your 401K may not be the best choice for everyone. In fact, only about 18% of millennials maxed out their retirement account consistently. It’s best to start small and increase your savings as you advance in your career, according to Erin Lowry, the author of “Broke Millennial: Stop Scraping By and Get Your Financial Life Together.”
Lowry says that if your company will match your 401K at 5% and you’re putting 10% in your retirement account, you should increase your contribute by 1% twice a year. If you continue to do this throughout your career, you can gradually reach the maximum for your account and go into retirement with a decent savings account.
Mo’ Money podcast host Jessica Moorhouse shared with her listeners that when she started investing, she made the mistake of investing in pricey mutual funds. However, Moorhouse says she doesn’t regret the decision, since she found robo-advisors that make investing much simpler.
If you’re investing for the first time, consider robo-advisors like Wealthfront and Betterment. Both of these advisors provide Roth IRAs, which are savings accounts that provide you with tax advantages. The accounts are funded by post-tax dollars. The robo-advisors will select financial portfolios customized to meet your savings goals while keeping your fees and taxes as low as possible.
To ensure that investing is even easier for, platforms like Betterment and Wealthfront let you automatically transfer your money for your checking or savings account into your investing account every month. You don’t have to maintain a minimum balance, but you may have to pay an annual fee to keep the account active. For instance, Betterment will charge you 0.25%.
If you’re a little nervous about using robo-advisors, don’t worry. Just because the advisors are automated doesn’t mean you’re going into the investment process alone. Moorhouse assures new investors that they’ll still be able to talk to a financial advisor over the phone and that robo-advisors are a cost-effective way to start investing.
When it comes to investing, you don’t have to be intimidated. The investing process can be pretty easy if you stick with low-cost index funds, according to Morgan Stanley financial advisor Christopher Zappy. Find a fun that tracks returns in the S&P 500 index; this index is comprised of the stocks of the 500 largest companies in the United States.
Zappy shares that the index is diversified, and the S&P 500 index is one of the best ways to grow your money. For instance, if you’re 25 years old and you invested $10,000 in the S&P back in 1980, you would have made $760,000 by 2018 –the year you turn 63.
It’s also easier for you to find free trading these days on trading apps and with major banks. Recently, Fidelity joined this trend and announced that it would get rid of trading commissions for all investments from stocks to exchange-traded money on its online platform.
Even though you may have some concerns about investing and saving for retirement, don’t panic. During the recession in 2009, Moorhouse recalls how friend of her parents watched in devastation as their 401K balances went down. Moorhouse says they panicked and quickly cashed in the rest of their investments to avoid losing any more money.
Moorhouse later shares that her parents’ friends made a big mistake by making financial decisions out of fear. It’s normal to see market dips; these drops in stock values are actually prime buying opportunities. If you purchase stock when the values are low, you could possible earn more when that stock goes back up. She encourages investors not to freak out and not to touch their investments, since the values of these stocks are likely to change.
When you know how to plan for retirement and you have clear goals and a knowledge of economic changes that may take place, you’ll feel much more at ease preparing for what could be the most relaxing time in your life.