By Christine Graf
According to the Federal Reserve, only 36 percent of Americans are adequately saving for retirement. The National Institute on Retirement Security estimates that almost 40 million U.S. households have no retirement savings.
According to Steve Bouchey, president and CEO of Bouchey Financial Group in Saratoga Springs, it is never too early to start saving for retirement. He has been helping clients for 34 year and has a team of 16 professionals who manage approximately $1 billion in assets for clients in 25 states and overseas.
“Start saving for retirement sooner than later. The sooner you get started, the more money you will have at retirement, and you may be able to retire sooner than expected or have the quality of life you always hoped to have,” he said. “The best advice I can give to a college graduate is that the first thing they need to do is put away as much as they can into a pension plan, and because they are likely in a low tax bracket, fund a Roth IRA.”
Roth IRA contributions are taxable, but earnings and withdrawals are tax free. Individuals who are covered by an employer’s retirement plan can make contributions to a Roth IRA as long as they do not exceed IRS income limits.
Those who haven’t adequately saved for retirement often find themselves having to work for much longer than they had planned. This is a major concern for those who begin to experience health issues as they get older.
“For a lot of people, they don’t have their health and may not have a job they are able to work at,” said Bouchey. “My goal for my clients is that if they are working during their retirement years it is because they are bored silly and not because they need to work.”
The average social security benefit is around $15,000 a year, an amount far less than what most people can comfortably live on. Gone are the days when many people can survive on social security alone.
“If you’re married and have $30,000 coming in from social security and are able to live on that, then you’re fine,” said Bouchey. “But if you need $50,000 a year to live on, where is that other $20,000 going to come from year in and year out? It has to come from your savings, and you have to have some considerable savings set aside in order to draw upon that.”
Although some experts believe social security will be run in 20 to 30 years, Bouchey considers it unlikely.
“I’m pretty sure the government won’t allow that to happen. If they do, I think it would be mutiny.”
He advises parents to encourage their children to begin saving at a young age. Saving half of what they earn and educating them on the basics of investing is considered a good rule of thumb. For adults of all ages, Bouchey recommends saving between 10 and 15 percent of their earnings.
“The first thing I ask my clients to do is pay themselves first,” he said. “What I mean by that is that before they get used to spending money in their checking account, have 10 to 15 percent going to their pension plan at work—especially if there is a matching incentive that the employer is giving because that is free money.”
Investing a portion of a person’s income also reduces the amount of money that is readily accessible in their checking account. As a result, that money is less likely to be spent.
“Retirement may seem so far away, but all of sudden you wake up and you are 55 or 60 years old and retirement is right around the corner and you realize you don’t have enough money saved up to draw upon,” said Bouchey.
Although COVID has been financially devastating for some, for others it was a time when they were able to grow their savings.
“It didn’t allow us to go out, so a lot of people had more in savings than they ever had before because they had nowhere to go out and spend money,” he said. “If people can just remember how nice it was to save money during COVID and continue that, they will be much better off.”
When dispensing investment advice, Bouchey said there are some basics that everyone can benefit from regardless of their age or income level.
“Live within your means first and foremost. Try not to use credit cards. Don’t spend more than you are bringing home. And if you aren’t saving 10 to 15 percent, you are not saving enough.”
Certified Financial Planner Mark Wells, co-founder of Three Buckets Wealth Management, recommends that everyone have three to five months of living expenses in their savings accounts. A private wealth advisory practice of Ameriprise Financial Services, Three Buckets has offices in Glens Falls, Latham, and Tucson, Arizona.
“If you don’t have disability insurance through your employer, it should be closer to six months of living expenses,” said Wells.
He recommends making maximum contributions to employer matched 401K programs in order to take advantage of “free money.” He also recommends Roth IRA’s to many of his clients including recent college graduates who are in lower tax brackets than they will be later in their careers.
“What we have been doing with a lot of our clients is a Roth conversion which is essentially realizing the tax or converting pre-tax assets like a 401K or IRA to a Roth IRA so that you realize the tax in that year. But that amount going forward is tax free, and the earnings are also tax free. It’s tax free to the owner of the account but also tax free to the beneficiary when they receive it down the road. In your early years when income is lower than it will be in the future, making a Roth contribution is a wise idea.”
Many of Three Buckets’ clients are members of the Baby Boomer generation and plan to leave inheritances to their children.
“The Baby Boomer generation is getting older and older, and it is the first generation that is expected to leave behind more money than the prior generation. A lot of money will be changing hands,” he said. “There’s a lot of financial planning that goes into making sure we are making a client’s situation as tax efficient as possible and also for the next generation’s because we want to make sure that Uncle Sam isn’t your biggest beneficiary when it’s all said and done.”
When developing investment strategies, the firm focuses on what Wells refers to as the “three buckets.” The first bucket, the pre-tax bucket, contains IRAs, 401Ks, and other investments that will be taxed upon withdrawal. The second bucket, the after-tax bucket, contains fully liquid assets for which earnings are taxed. The third bucket, the tax-free bucket, contains Roth IRAs and other investments for which distributions are tax free.
“If you have money in all three buckets, when tax rates are higher, you can take from a tax-free bucket,” he said. “When tax rates are lower, you can take from a pre-tax bucket. It’s about making sure we are preserving and keeping as much of the assets inside the household for our clients.”
Both Wells and Bouchey recommend finding a financial advisor who best meets a client’s individual needs.
“If you’re hesitant, come in and have a conversation,” said Wells. “At the very least, you are going to learn something. And the end of the year is a good time to take a look at your portfolio and rebalance it and make sure that you are still aligned with your risk tolerance and your goals.
According to Bouchey, there are many benefits to having help from a trained professional.
“We are trained to look under the rocks and point out things you may not figure out on your own. The best value that I bring to clients is that I take the emotion out of the process. Investors think with their heart. They panic and have knee-jerk reactions, while a professional like myself is going to make sure that we don’t bring those emotions into the decision making.”