401(K) IRA Roth IRA

you’re earning an income, you need to start planning for retirement.”

To help those looking to get an early start on retirement planning, accountants like Walker evaluate a person’s current assets, and try to predict their future expenses. This can include helping plan for a child’s education, and evaluating other factors like insurance, as well as disabilities. “One thing people don’t always plan for is becoming disabled,” Walker said. “You know, not being able to work, it’s always good to have a disability policy in place, and we’ll make sure that’s part of the portfolio of assets… and asset protection vehicles that individuals may have,” he continued.

One thing Walker specified is that, while he may help set up a financial plan for retirement, investment decisions are not something in an accountant’s wheelhouse. “We’re not licensed to make specific stock investments and make trades for individuals. That’s where we’d have to work with an investment advisor,” he explained. “We kind of develop the overall plan, and then involve the investment advisor to execute the specific investments, you know, what funds you want to invest in, what stocks you may want to buy.”

Getting further into the weeds, he discussed the different types of retirement plans out there, going into the details of what they offer. With a 401(k), while some rules or aspects may differ from company to company, the principle idea is the same: “You can set aside a certain percentage of your salary, up to a certain dollar limit each year, and typically there are company matching contributions to that as well.” Walker gave some pointers on deciding how much to set aside for a 401(k), should there be a company match contribution; specifically, set aside the bare minimum required to get that match.

As for an individual retirement account (IRA), as the name suggests, an individual can simply go to an investment advisor themself and open up one themself, with no business/ employer involvement. Additionally, there are Roth IRAs to consider, with IRA contributions being made pre-tax. “But when you draw it out at retirement, you’re taxed on that distribution,” Walker explained. Conversely, while a person doesn’t get a current tax deduction with a Roth IRA, their withdrawals during retirement are not taxed.

Of course, while a person can try to predict future expenses that may come later in life, there are external factors beyond control or predic- tion that can impact retirement. One that is very apparent these days is inflation, as well as changes in interest rates. When asked how one’s retirement could be impacted, Walker clarified, “It depends on the investment mix… People that are in maybe more liquid investment, such as money market or CDs, they’re seeing an improved return now.” He continued, “Somebody in the stock market or bonds, the returns may be a little suppressed because of the rise in interest rates, and really the rise in inflation is the bigger contributor to hindering people’s retirement plans right now.” Naturally, and unfortunately, with inflation raising the cost of living, retirees find their savings not going as far as they had initially planned. “That’s where a good, systematic plan early on would help, and enable you to take out those distributions as required.”

“Until you go through the calculations, it’s amazing how systematic contributions and time will grow your money exponentially,” Walker concluded.

Planning for retirement isn’t just planning for the short-term, or for one large, singular purchase, it’s planning for the rest of your life. With that in mind, you can’t be too careful.

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