Congratulations! Your hard work has paid off. You’ve finally hit that six-figure salary. You must be asking yourself, “What do I do now?”
Whether you’re looking to start a family, work hard/play hard, or just want to retire as early as possible, making sure you’re saving and investing to reach your goals is going to be your first priority.
Employers offering pensions are a relic of the past, and social security may not be sufficient to satisfy your expense needs. It’s up to you to save enough.
Other professionals have advised 10% as a healthy savings goal, but if you wish to maintain your quality of life in retirement, this probably will not be enough.
We advise saving 20%-30% of your gross income depending on your age and your earnings. The earlier you start, the greater the chance that 20% will be enough. However, the more you make, the higher the percentage you’ll need to save. These amounts could be adjusted further depending on your targeted retirement age.
Where You Are Saving Is Just as Important as How Much You Are Saving!
- First, establish an emergency fund. This should be between three and six months’ worth of expenses.
- Equally as important is to contribute enough to your 401k to get the maximum employer benefit, if one is available.
- If you’re covered by a high-deductible health plan, look into the availability of a Health Savings Account (or HSA). Not only do the unused balances rollover from year to year, but you will not be taxed on the money you contribute or withdraw for qualified medical expenses. Additionally, you may have the option to invest these dollars!
- Maximize a Roth IRA, assuming you don’t exceed the income limitations. Learn more.
- After you have maximized your Roth IRA then look back at your 401k. Contribute additional amounts up to the annual limits.
- For shorter term savings goals an after-tax investment account will make the most sense. Think brokerage account registered in your own name, in the name of a trust or as community property for instance.
- For those with children, consider getting a head start on college savings with a 529 account. New rules as of 2023, make this vehicle even more attractive.
- When you are self-employed or have additional non-W2 earned income, you likely have additional savings options that offer tax advantages, such as a SEP IRA or solo 401k.
Navigating the complexities of a comprehensive financial strategy can be daunting. A CERTIFIED FINANCIAL PLANNER™ practitioner will be able to help you.
Beyond Savings and Investing, There Are Plenty of Other Things to Consider.
As earnings grow, you will likely need some life insurance. If so, how much, and what type? Life Insurance products are not created equal; some are too costly with inadequate coverage.
We typically recommend level-term life insurance, in lieu of expensive permanent life insurance products (such as Whole or Universal Life) which often leave you under insured. And be wary of insurance products marketed as investments, such as annuities.
What about your estate plan?
As you build your wealth, it is important not to leave decisions related to the disposition of your financial assets to the court system, which is why establishing an estate plan is imperative. If you own real property and live in California, a living trust is almost always recommended.
Further, when establishing an estate plan, you will make important decisions, such as naming guardians for your children, establishing a medical directive and naming a durable power of attorney. This ensures that medical and financial decisions are made by people of your choosing.
The bottom line, is that you’ve reached a milestone. Now is not the time to sit idle. The CERTIFIED FINANCIAL PLANNER™ professionals at Whelan Financial will be able to guide you through this entire process and help you avoid making uninformed, costly decisions that could permanently impact your long-term financial goals.
Call in to schedule a time to meet with one of our advisors.
Authored by Stephen C. Detweiler, CFP®