“Am I on track to meeting my retirement goal?” That’s a burning question for many Americans, especially those whose retirement date is coming into view. For those nearing age 55, considered to be the start of the final glide path to retirement, it’s a critical milestone that could determine what, if any, steps need to be taken to get or stay on track to achieving their retirement goal. 

Financial planners often suggest that by age 55, you should have saved a substantial portion of your nest egg to ensure a comfortable retirement. However, in practice, there is no one-size-fits-all answer to how much, as individual circumstances vary significantly, including your current savings rate, lifestyle expectations, retirement goals, and expected expenses. 

Why It’s Risky to Use General Rules of Thumb

If you follow general rules of thumb, you have probably heard that you should aim to have saved somewhere between 10 to 15 times your annual income by the time you retire. That estimate is based on the widely used assumption that you’ll need to replace about 70 to 80% of your pre-retirement income to maintain a similar standard of living. 

Based on those guidelines, it’s suggested that you have at least eight times your annual income saved by age 55. 

However, today’s retirees are finding that rules based on decades-old averages and assumptions don’t necessarily account for 21st-Century realities, such as rising healthcare costs and expanding life expectancies. Of course, it also depends on exactly when you expect to retire, how much you have saved, and at what age you plan to start your Social Security benefits. 

To get a more accurate idea of how much you should have saved by age 55, consider the following steps:

1. Crystalize Your Vision of Retirement

It begins with knowing what it is you want to have happen. The more clearly defined your goal, the more motivation you will have for achieving it. To ensure you save enough, your goal needs to be clear, and your planning assumptions must be realistic. Although your time horizon may be off in the distance, your vision needs to be tangible with defined lifestyle needs. Your vision will likely change over time, which is why it is essential to review your retirement plan regularly. When you lose sight of your target, you are less likely to hit it.

2. Determine What it Will Cost

With a clear vision and well-defined goals, you can then attach a price tag. The mistake many people make is that they try to use some general rule of thumb, such as calculating their retirement income need as some percentage of their current income. Your income calculation should be more deliberate, based on a realistic spending plan.

It’s also risky to assume that your expenses will decline in retirement. That’s not necessarily true anymore. When you consider the increasing costs of health care, long-term care, and even the possibility that you may be caring for your aging parents for a while, these can throw any budget out of whack. Plan for a cushion and factor in the increasing cost of living. With an average inflation rate of 3%, your cost of living will double in 20 years. You will also want to factor in an expanding life expectancy. People who reach age 65 today have a 50% chance of living past age 90.

3. Know Where you are Today

In addition to a clear vision, you need a clear picture of where you are today in relation to your goals. A thorough assessment of your financial situation, including your current savings, future savings capability, risk tolerance, and other priorities, will determine your retirement savings requirement.  

Don’t Set It and Forget It

Another significant mistake people make is not checking to see that they are still on track to meeting their retirement goal. If there is one thing we have learned over the last decade, it’s that the economy and the markets can change very quickly. If you experienced the pandemic-induced shutdown of the economy and the steep market crash of 2020, you also know your financial circumstances can change rapidly. For many people, their retirement targets moved, but they didn’t make the necessary adjustments. That’s why you can’t set and forget your retirement plan. Instead, you should take frequent snapshots of your financial circumstances and where you stand in relation to your goals. 

Your retirement plan should be adjusted based on your evolving needs and priorities. When done regularly, the adjustments are typically small, just enough to keep you on track. When you always know where the target is, you’ll know if your aim is true.

By following these steps, you will have the vision, the goal, the cost, and the motivation to get your plan on track. Determining the actual amount you need to save will require some calculations that can be done using a retirement income calculator. However, it’s highly recommended that you work with a financial advisor with the tools, resources, and objectivity to guide you to your retirement goal.

Partner with an Expert Financial Advisor to Guide You Into and Beyond Retirement 

Ready to see how your savings measures up to your goals?

Platt Wealth Management can help. Our team is made up of only the best financial advisors–those who are ready to understand your goals and dreams in order to present the right solutions to your retirement planning needs. We also help identify opportunities that will simplify your financial life, boosting confidence in your path forward. Ready to learn more? Schedule a call with our team today.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

As of 2022, there were $8.4 trillion in sustainable investing assets. Investors from all walks of life leverage sustainable investments as part of their wealth management plan. If you’re someone whose life decisions are often driven by how your choices impact the environment, your community, and society as a whole, it’s time to look into ESG investments. Environmental, social, and governance (ESG) investments consider how the companies you invest in help safeguard the environment and community—helping you earn money and build a more ethical portfolio.

Plus, a company’s commitment to environmental, social, and corporate governance can also positively impact its performance, offering lucrative opportunities for investors. Here’s how you can get started with ESG investing as part of your investment management strategy.

What is Environmental, Social and Governance Investing (ESG) Investing?

ESG investing is a form of sustainable investing that considers environmental, social and governance factors to judge an investment’s financial returns and its overall impact. Environmental, social and governance factors (ESG) are used to evaluate a company or investment’s sustainability.

1. Environmental Factors such as:

• Carbon footprint
• Air and water pollution
• Deforestation
• Green energy initiatives
• Waste management
• Water usage

2. Social Factors such as:

• Employee gender and diversity
• Data security measures
• Commitment to customer satisfaction
• Sexual harassment policies
• Human rights

3. Governance such as:

• Board diversity
• Political contributions
• Level of executive pay
• Large-scale lawsuits against the company
• Internal corruption cases
• Lobbying practices

Investors use ESG scores ranging from 0 to 100 to measure the sustainability of an investment. Scores below 50 are poor, while scores over 70 are highly desirable.

Benefits of ESG Investments

Building a sustainable investment portfolio can help increase your potential for high returns. According to the Morgan Stanley Institute for Sustainable Investing, the returns of sustainable mutual and exchange-traded funds were similar to traditional funds and, in some cases, actually outperformed traditional investments between 2004 and 2018. Also, the JUST U.S. Large Cap Diversified Index (JULCD) has returned 15.94% since its inception on an annualized basis compared with the Russell 1000’s 14.76% return. 

Morgan Stanley also noted that sustainable funds showed a lower downside risk than traditional funds. Even during turbulent markets when traditional funds showed more significant downside deviation with a higher potential for loss, sustainable funds experienced a 20% smaller downside. Morningstar, an investment research company, also found that in the first quarter of 2020, 25 of 26 sustainable index funds outperformed comparable traditional funds despite the pandemic.

What Types of ESG Investments are Available?

Although there are several ESG investment options available for your financial planning strategy, the two most common options include:

1. ESG stocks: Although investing in a single stock type isn’t the best strategy, finding a few individual ESG stocks offers an opportunity to gain from their performance over time.
2. ESG mutual funds: Almost 600 open-end and exchange-traded ESG funds are available. Mutual funds create instant diversification, and with ESF mutual funds, you can create a more personalized portfolio, so your investment will have the most impact on the issues you care about.

When considering ESG investments, reviewing the prospectus and considering the company’s ESG score are both equally important.

Plus, ESG investments can be broken down by an even more detailed scoring systems, which make it easier to focus on investments that mean the most to you.

1. Issue-specific ESG scores measuring performance based on a single issue.
2. Category-specific ESG scores based on either environmental or social or governance issues.
3. General ESG scores focused on all three categories.

Consult with your financial advisor to find the best investments for your portfolio.

If you want to explore the possibilities of adding ESG investments into your financial planning strategy, speak to the experts at Platt Wealth Management today. We can help align your investment choices with your environmental, social, and governance values today.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Many of your have heard of the popular 529 savings plans that custodians can set up to fund their child or grandchild’s college education. Earlier this year, you likely also heard about the SECURE 2.0 Act which brought down some of the biggest changes to retirement and savings plans in recent years. But what does college planning have to do with retirement planning and how could the new legislation make 529s even more attractive than they were before?

Breaking Down the Benefits of SECURE 2.0 to 529s

But what does the SECURE Act 2.0 have to do with these 529s, you ask? Well, it broadens the definition of “qualified education expenses” and enhances the flexibility of these plans.

Thanks to SECURE 2.0, 529s now cover costs related to apprenticeships, and — here’s the big kicker — student loan repayments. Yes, you heard it right! You can now use the 529 plan to repay up to $10,000 in student loans. This new feature alone could make 529s far more appealing to many families.

Additionally, under SECURE 2.0, if your child gets a scholarship, you can now withdraw the amount of the scholarship without the usual 10% penalty. That means more flexibility to adapt to life’s surprises.

Balancing the Pros and Cons of 529 Plans

Now, does this make 529s more attractive? It’s not a simple “yes” or “no.” While these changes certainly sweeten the deal, they don’t fundamentally alter the nature of 529s.

529s remain an investment tool best suited for those quite certain about their children’s path to higher education. If your family’s situation matches this description, the expanded benefits under the SECURE 2.0 Act could indeed make the 529 plan more attractive.

However, if there’s considerable uncertainty about your child’s educational future, or if your family might not be able to take advantage of the new benefits (like the ability to pay off student loans), the enhanced 529 might not seem much more attractive than before.

The Risk? The Tax Costs of Overfunding a 529

The reason that we say 529s are an investment tool best suited for those “quite certain about their children’s path to higher education” is because a new J.P. Morgan study found that a 529 account is still the most tax-efficient way to save for a student’s education—but only if that account is actually used and depleted by the time the student completes their education.

That’s because removing the funds from the 529 for non-qualified expenses triggers a tax event. If the beneficiary does not go to school or does not finish school, the custodian has two choices:

• Take back the money in the 529 account or give it to the student. However, in both cases, taxes and a 10% penalty must be paid on the earnings at the recipient’s ordinary income tax rate. If the student is in a lower tax bracket, it makes most sense for the student to receive the funds and pay taxes at the lower ordinary income rate.
• Pass the account on to a lower generation (e.g., grandchildren). But there would be a tax liability for this option as well. The initial beneficiary might have to use some of the $12.92 million gift tax exclusion when a new beneficiary is named.

In other words, if you aren’t sure your child will attend college or may not complete a full four years, you’ll want to look at other options to avoid these tax implications. Other options include a pay-as-you-go approach, funding UTMA accounts, or setting up grantor trusts.

Choosing the Most Impactful Path

The SECURE 2.0 Act has brought some considerable enhancements to the 529 college savings plans, making them potentially more attractive to many families. However, whether these changes tip the scales in favor of a 529 plan for you and your family will largely depend on your specific situation and needs. A 529 account is the most tax-efficient education savings alternative, but only if the account is exhausted when the student’s education is completed.

As always, remember that financial planning is a personal journey. It’s essential to consult with a professional advisor who understands your financial goals and circumstances. If you’d like to discuss these changes and see how they impact your current financial strategy, don’t hesitate to get in touch!

At Platt Wealth Management, our team of financial advisors are ready to understand your goals and dreams in order to present the right solutions to your needs and opportunities that will simplify your financial life. We would love to learn more about you with a complimentary Discovery Call. Contact us today to discuss your opportunities.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.