So how should we go about addressing retirement security through life transitions?
First and foremost, we need to understand that life doesn’t travel a straight path. Retirement security is a journey that must adapt to the changing needs of a law professional through each of their life’s stages. That includes their early working career, accumulation and preretirement, as well as when they’re at retirement and in retirement.
Let’s discuss the transitions that all of us must pass through. During these transitions, we may be landing our first job, changing jobs or starting our own firm. Or we may be looking to diversify our portfolio to plan better for retirement or actually making the leap into retirement. No matter the transition, we must keep a focus on our retirement savings.
There are a few different options for managing our retirement savings during life’s transitional periods:
Leave your money behind in a former employer’s plan: Your money can stay put as long as you have more than $5,000 in your plan. No paperwork is involved at this point; your money will stay tax-deferred and you can stay invested in the plan’s investment options.
Roll your money over into your new employer’s plan: If you’ve moved to a new job and are eligible for a new employer-sponsored retirement plan, you may be able to roll your old account into the new one. This option reduces the number of accounts you need to track and manage.
Roll your money into an IRA: Place the money you currently have in your employer plan into what’s called a “rollover IRA.” Your account will continue to grow tax-deferred, and you can continue making contributions, up to IRS limits, each year.
Take a lump-sum distribution: Taking your money out of your employer plan as a lump-sum payment is an option, but it’s important to understand that you won’t get all of the money in your account because of tax withholding and possible early withdrawal penalties if you are younger than age 59-and-a-half.
Now that we’ve outlined the life stages and discussed the pros and cons of the different methods of moving your money around during transitions, we will leave you with some guiding principles we like to follow when it comes to saving for retirement. Follow these simple steps and you will be on your way to a more secure retirement:
Reframe your brain: Don’t think of saving in your retirement plan as a luxury or something you can start later. Consider it a requirement of moving into the legal profession.
Find your balance: Paying off debt is likely your priority. Fine — but that doesn’t mean you can’t balance it with saving. Much of the success you’ll have as a saver is behavioral. You just have to do it. Find a way to start early, even if it’s a small amount.
Use your autopilot: If your retirement plan offers an automatic escalation feature, use it! Before you know it, you’ll be saving more than you thought possible.
Find your match: If your employer offers a contribution match, try to maximize it. Don’t leave valuable money on the table.
Give your savings a raise: Commit to allocating some percentage of your pay increases (should you be so lucky!) to your retirement savings. Say you’re getting $200 more per paycheck — commit $50 of it to your retirement account.
Don’t give up: Some unexpected thing is going to happen, as it always does. It’s OK to reduce what you’ve committed to saving for retirement, but you should never stop. If you stop, inertia sets in and it becomes very difficult to start again.