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Dvorak May 2021 Company Meeting - 401(k)

Dvorak LLC Friends:


Our CEO & our team’s lead Financial Planner, Chris vonLindenberg, has created 4 short video segments for this Spring’s company 401k virtual meeting. Also included is an article with Time Value of Money calculations for IRA’s, which we believe may help you with some benchmarking and understanding compound interest.

Video “cliff-notes":

- Don’t leave free money on the table by failing to defer enough income to fully capture your company match.

- Consider benefits of making Roth elective deferrals over the long-term. ***note*** Roth deferrals do not jeopardize your pre-tax company match.

- To better prepare for the future and to stay on track with retirement preparedness, consider increasing contributions each year or every 6 months by just 1%.

- Avoid taking plan loans if at all possible; doing so can adversely impact account performance.

- If you have big money questions or savings just sitting in the bank not working for you and your future goals, seek qualified guidance from a CFP professional.

- If you haven’t looked into cutting interest costs with mortgage refinancing, it may be worth exploring due to today’s low interest rate environment.

- Target Date Retirement funds may be the prudent option for many participants.


Here in your corner if you need us.


-v


Christopher W. vonLindenberg ChFC® CFS® RICP® CLU® AEP® CAP® CDFA®
CERTIFIED FINANCIAL PLANNER™
5301 Limestone Rd. Suite 226
Wilmington, DE 19808
Tel. 302.235.8672
Fax: 302-235-8678
Visit us online: www.lindenbergfinancial.com
 
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On occasion we field the same general question, usually coming from our super-savers who are “under 45” as a client demographic.

“Am I on track for retirement?”

 Because financial planning is personal and unique to each individual / family, the answer to answer this question is somewhat subjective and varies by household, particularly as we get older and accumulate greater levels of wealth.  The rule of thumb is that young savers should aim to set aside 10-15% of household income (per year) to become adequately prepared for a normal retirement life; this also assumes a traditional working time horizon somewhere in to our mid 60’s, of course.  As a side note, late savers may need to increase savings to 20% or more.

A goal of our practice is to help with benchmarking. In the spirit of IRA season (upcoming May 17 deadline), we’ve compiled a rather basic example of a hypothetical saver, aged 25, who began saving $500 per month through age 65 (41 years).  It assumes NO increases in contributions and we illustrated hypothetical rates of return on the investment (ROI) of 6, 8 and 10%. 

While some investors may start younger or later in life and experience better returns (or potentially worse), this chart might help someone benchmark their own progress against this example.  Today, IRA contributions are capped at $6K per year ($500/mo.) for investors under age 50, so this example is very realistic, if not conservative -  - especially for someone who is disciplined about saving the right percentage of their income at an early age.  Additionally, if this were a Roth based account, the gains are not subjected to income taxes after age 59.5, so it could be 100% income tax-free!

Key observations:

  • There’s a significant opportunity cost (i.e., forgone earnings) by delaying savings just a few years.
  • The gains in the early years appear very minimal as a dollar figure; a reminder that compound interest takes time, thereby requires patience, commitment and discipline on behalf of the investor.
  • We regularly identify investors who may not have their money aligned properly with their time horizon, goals or even tax preferences. For example, maintaining savings within a non-interest-bearing bank account or a retirement account invested in “cash”.
  • “Cashing out” a retirement account, pausing contributions or retiring early can have a significant impact on the future value of your retirement savings.
  • An investor who is disciplined to save a specific percentage (%) of their annual income will likely save and accumulate significantly greater wealth than illustrated, based upon increased earnings over their working years.


About the author:   Christopher “v” vonLindenberg is a Board Certified Financial Planner Professional™ and the CEO / Founder of Lindenberg Financial, Inc.; find us online: www.lindenbergfinancial.com