2023 Newsletter — Volume 3

When should I start saving for retirement?

When it comes to retirement planning, saving early is saving smart. Although you may not know what your future holds, consistently putting aside just a small amount of money each month can go a long way — especially when compound interest is factored in.

What is compound interest? How do you utilize compound interest?

When you start investing early, your savings begin to capitalize on returns and interest earnings that outpace inflation and ultimately grow your nest egg. It's no surprise that the more money you can put away now, the more you’ll have in savings later.

Do you realize what factor time plays into your savings? Even if you can only put aside a small amount each month, with compound interest you can potentially watch your money grow faster and faster over time. As you can see on the chart below, the more time your money has to grow, the more it benefits from compound interest.

Example: Starting at age 25 and contributing $150/month until age 65, your savings would grow to nearly $360,000 because the interest you earn compounds over time.

Remember that starting early allows your money to grow faster over time with compound interest. Make the most of your savings and start early!

How much to contribute to your retirement?

The big question that pops into everyone's mind…how much should I contribute to my retirement account?

The answer to that question depends on multiple factors, here are the three most common items to consider:

• How much you are earning?
• When can you start saving? (Remember the article above!)
• What lifestyle have you become accustomed to and want to keep during retirement?

A common rule of thumb is to set aside at least 10% of your gross earnings when you are first starting to save. Then, once your salary increases and finances/budget allow, try to increase your contributions to 15% or more.

What is my asset allocation?

Investing in itself is fairly straightforward. The hard part is deciding where to invest your money.

The term “asset allocation” is a key part of any investment strategy. Asset allocation is simply deciding how much of your savings you’ll put into different types of asset classes. The goal is to balance risk and reward by creating an investment mix that supports your goals, comfort with investment risk and the number of years you have to invest.

However, next to deciding how much you contribute, asset allocation is one of the most important decisions that retirement savers can make. An important part of your asset allocation is personal risk tolerance as each person has a different risk comfort.

There is no simple formula that can find the right asset allocation for every individual. The three main asset classes — equities or “stocks”, fixed-income or “bonds”, and cash and equivalents — have different levels of risk and return, so each will behave differently over time. Below are three sample portfolios showing allocations for a conservative, moderate and aggressive portfolio.

There is no hard and fast rule dictating risk tolerance, but before deciding on any investment, you should carefully consider your investment objectives, level of experience and risk appetite. You can always speak to a financial professional for guidance.

Learn more about your personal investment risk by completing the Risk Assessment Questionnaire.

Login to BenefitsForYou to check your retirement account contribution rate and investment allocation.