Question

“I’m 39 years old and married. I have $215,000 in a 401(k), $40,000 in stocks, and my wife, who is 37, has about $60,000 in her pension. We want to retire at 60, but we also have two young kids who will be heading to college in roughly 15 years. What are our options? What steps can we take now to ensure a comfortable retirement? Should I consider hiring a financial advisor? What should be the first move?”

Answer

There’s no simple answer regarding how much you should save for retirement, but experts commonly suggest having about three times your household income saved by your 30s. According to the Federal Reserve’s Consumer Finance Survey from 2022, individuals aged 35 to 44 typically have about $141,520 saved. Ideally, you and your spouse should aim for at least double that at this point in your lives.

To project what you might need in retirement, examine your current annual living expenses. Financial professionals usually estimate that during retirement, you’ll spend about 70% to 90% of your pre-retirement income. If you are making $150,000 and want to maintain around 80% of that for a comfortable lifestyle, you’ll need about $120,000 a year. With Social Security expected to provide around $50,000 to $60,000, that means you’ll be withdrawing $60,000 to $70,000 from your savings. But, of course, all this can vary widely based on your lifestyle choices.

That said, it seems you’re somewhat behind on your savings. “To secure $80,000 annually in retirement, you’d need about $2 million saved up. Plus, inflation means that $80,000 will have a significantly reduced purchasing power in 21 years,” says Gil Baumgarten of Segment Wealth Management in Houston.

Baumgarten continues, “If you assume an 8% annual return, your money should double roughly every nine years. So, if you can double what you currently have saved, you’d make a lot of progress before considering inflation. Also, contributing a few thousand dollars a month to a tax-free 529 plan for your kids’ education could be beneficial. Still, the more you can save, the better.”

In any case, there’s clearly a significant journey ahead. “My primary recommendation centers on saving through a retirement plan,” explains Joe Favorito, a certified financial planner. “If you can set aside 10% or more of your combined income, that would be ideal. Don’t forget to take advantage of any employer matching contributions.”

Favorito also emphasizes the importance of prioritizing your retirement savings. “While it’s crucial to save for your children’s education, ensuring your retirement funds are secure should come first. Setting up a 529 plan is a fantastic option, and some states even have prepaid tuition plans.”

While having a financial advisor might ease your worries, cutting costs could be more critical in your situation. “Invest in low-cost index funds like VOO, VTI, and SPY,” Baumgarten recommends, suggesting that you also consider affordable indexed options in a 529 plan.

However, seeking guidance from a financial planner can be immensely valuable. They can help map out a plan tailored to your financial goals, whether that’s retirement or funding education. “Choosing the right type of contributions for your 401(k) can significantly impact your financial future. Knowing whether a Roth or traditional contribution is best can make a difference,” points out Alonso Rodriguez Segarra, a certified financial planner.

Most advisors prefer working with clients who have sizable portfolios, which might not be the case if most of your money is tied to your 401(k). “I recommend looking for a certified financial planner who charges on an hourly or project basis. This way, they’ll strive to add value to your finances, similar to how an hourly lawyer or accountant would operate,” Segarra advises. Advisors charging hourly rates typically range from $200 to $500, while project-based fees can be between $1,500 and $7,500.

In light of all this, it’s clear that financial advisors can address various concerns. “Whether you decide to hire one hinges on how much support you feel you need,” concludes Favorito.

If you’re having difficulties with a financial planner or are considering hiring one, don’t hesitate to reach out for help.

Note: This question has been revised for clarity. By sending a question, you agree to have it published anonymously.