Get Started With Retirement Saving (Podcast)

Victoria Dubuc
Hi, Amy. Thanks for having me.

Amy Laburda
I wanted to start on something of a personal note, so

00:35
it seems fair that I should go first. I'll confess, when I started my working life, I knew that saving for retirement was important, kind of in an abstract way, but I felt really strapped between my student loan repayments and the cost of living. I don't think I really had a firm grasp on the power of starting early. So it felt like a thing I could get to later, a thing that would wait while I was dealing with the higher-pressure requirements of the moment. So it really took until my, like,

01:01
mid to late 20s before I actually got started saving money for retirement. Now, your education focused on finances, which mine did not. So did you start setting aside some money responsibly sort of right away or did you also have a little bit of time before you really got started?

Victoria Dubuc
I completely understand, Amy. In my case, having a background in accounting and finance definitely gave me a solid understanding of the importance of financial planning and budgeting early on. But

01:29
I would say knowing the rules doesn't always mean that it's easy to follow them right away. So I think as a young professional, I faced the same challenges you did, like starting out with a smaller salary, or managing the cost of living, and tackling some debt repayments. In my case, it took me some time to get my finances in order before I could start saving for the future.

01:56
My first priority was actually building an emergency fund, so I could handle any unexpected expenses. Once I had that safety net in place, I began setting aside money for my long-term goals. And lastly, I think one thing that really helped me set up my long-term goals was budgeting. Creating a clear plan for my income and expenses allowed me to set

02:21
realistic saving targets and really track my progress. Once you see all the numbers laid out, you can turn abstract goals into actionable steps.

Amy Laburda
Well, I hope that's heartening for listeners who might feel like they're behind or feel like they got started too late.

02:37
The two of us work for a financial planning firm and both of us took a little while to ramp up. I think your points about emergency funds and budgeting are well taken, and we've talked about both of those things in earlier episodes this season. So I'll link those in the show notes for people who want more detail on how to dive into those. But I think the takeaway is getting started early is a good thing, but it's not the only thing, and there's not a moment that, “Oh, it's too late. I've missed the boat.” So

03:03
listeners who've heard earlier episodes, or who know Palisades Hudson, know that we look at our clients' finances from a big picture [perspective] that includes not only retirement planning, but often tax, other savings goals, debt repayment, a lot of different things. So with those long-term goals in your budget, if someone's trying to figure out how to fit retirement into their big picture, do you have any general advice for them? Obviously everyone is different, but any sort of big-picture things that people can keep in mind?

Victoria Dubuc 03:32
That's a good question. I think also my colleague Thomas mentioned this in an earlier episode. Everyone's situation is unique, and I would say there's no one-size-fits-all approach. With that said, there's a couple of key principles that I think are important to keep in mind when considering where retirement fits into your big picture.

03:55
I would say first, retirement is a long-term goal that benefits from starting early, because the power of compounding works best when you give it time. The earlier you begin, the better. And second, I would say, unlike education or homeownership, funding retirement through borrowing is not a practical option. So if you're trying to balance retirement savings with other financial priorities, like paying off debt,

04:23
my general advice would be to evaluate the trade-off carefully. For example, if your anticipated investment returns are significantly higher than the interest rate on your debt, it might make sense to prioritize retirement savings. Of course, the specifics will depend on your personal circumstances, so it's always a good idea to get tailored advice when possible.

Amy Laburda
Sure. I think in my stage of life, I know a lot of people are trying to balance

04:50
saving for their kids' education, for example, with retirement. But student loans are a thing that exist and there's not really such a thing as “retirement loans” as such, which can tip that balance. Makes sense to me. So you mentioned our colleague Thomas Walsh, whose episode I'll also link. He has a really good discussion about balancing savings and debt that I think is germane to what you were saying. Also speaking of Thomas, the two of you

05:14
co-authored the chapter on retirement in the second edition of our book, The High Achiever’s Guide To Wealth. So when you were sitting down to work on that chapter with him, did you learn anything that surprised you or anything you didn't already know?

Victoria Dubuc
That's actually a good question, Amy. I did. While working on this chapter, one thing I found particularly interesting was exploring two contrasting trends in the current labor market. On one hand, there's the FIRE movement. I don't know if you've heard of it.

05:43
It stands for Financial Independence, Retire Early. This group is focused on retiring as soon as possible, usually around their 40s, by saving and investing aggressively and while keeping their expenses as low as possible. Their goal is to build a nest egg large enough to eliminate the need for a traditional job.

06:08
On the other hand, we're also seeing a growing number of people choosing to work well past traditional retirement age. While life expectancy and advancements in technology are increasing every day, this reduces the physical demands of many jobs. So continuing to work, it's both practical and fulfilling for many. I found this interesting, and I would like to see how

06:36
these extremes coexist in the future and what they might mean for the future of retirement planning.

Amy Laburda
So zooming out a little bit from the extremes, back a little bit towards the center: We touched on why getting started early is a good idea with compound interest and long investment timelines. But my guess is that, after that, maybe the most common retirement planning question is “how much do I need?” Do you think as a financial planner, that's a fair assessment?

Victoria Dubuc
That's absolutely fair.

07:06
This is one of the most common and, I would say, important questions when it comes to retirement. The tricky part is that the answer isn't always straightforward. It depends on a variety of factors, like your current and your future lifestyle, your future goals, health and even how long you expect to live. So because these calculations can get pretty complex, there's rarely something you can figure out with the back of the napkin math.

07:35
That's why working with a financial planner can be so valuable sometimes.

Amy Laburda
Yeah, I think it makes sense when you stop and think about it. Some of those things are just complicated to think about, and some of those things are things you can't really know. You can estimate how long you expect to live, but it's not a thing anyone has promised. So it's kind of a complicated exercise by its nature, when you stop and think about it.

Victoria Dubuc
I agree. Yeah, it gets — it can get complicated.

Amy Laburda
So I think

08:03
sort of zooming in on one of those, it's easy to see why you might be spending more on health care. A lot of people as they age either develop or have worsening chronic, or sometimes acute health conditions, or both, later in their life. Health care and long-term care can get pricey. But other than that, do most people's expenses tend to go up or down in retirement, or is there any way to know ahead of time?

Victoria Dubuc
That really depends on the individual. Retirement expenses can vary widely.

08:32
For many people, work-related costs, like commuting or buying lunch during the week or paying for continuing education, disappear when they retire. On the flip side, some retirees find themselves with more free time and choose to spend it, like, in traveling, shopping or pursuing hobbies, which can increase their leisure spending. So others may

08:59
decide to downsize their home or move to a lower-cost area, significantly reducing their living expenses. So whether your expenses go up or down in retirement, that will depend specifically on your lifestyle. That's why it's so important to think about how you want to spend your retirement and factor that into your planning.

Amy Laburda
Makes sense to me. I have retirees in my life who mainly use their time to work in their garden or do puzzles.

09:28
And then other ones who are just constantly on cruises every time I turn around. So, you know, I'm glad they're both having fun, but those are definitely different lifestyles to think about.

Victoria Dubuc
Definitely.

Amy Laburda
So we've touched on how this is a complicated exercise. It seems like you're trying to create an informed guess. But once you get a rough number, ideally with the help of a professional, to kind of project best case scenario, worst case scenario, average, middle scenario:

09:57
How do you translate that into actual numbers that you want to be saving here in the present, month to month, putting into accounts?

Victoria Dubuc
Once you have a rough idea of how much you'll need in retirement, I would say the next step is to work backward to figure it out, how much you should start saving now. I would approach it with a few simple steps. The first one: You should evaluate your current assets. You can take a look at what you already have saved,

10:25
whether that's in retirement accounts, investment [accounts] or other savings. Second, I would determine your projected time horizon. And you can think about when you plan to retire and how long you might need your savings to last. For example, if you're planning to retire at the age of 60 and you think you would live until your, maybe, 90s, you may need 30 years of savings.

10:54
And lastly, I would factor in growth. Remember that investing and compound interest can work in your favor, especially if you have a long time horizon. So the earlier you start, the more time your savings have to grow.

Amy Laburda
So it sounds like if you get a later start, what you're really talking about is you really need to make more of a nest egg, make more of a dent in your month-to-month savings, since you don't have as long for that investing and compound interest to really work for you.

11:22
So we established it's never really too early. And we've established that if you don't start in your early 20s, you're not sunk. But is there a point where it's really too late, or you have to make some really more dramatic changes to meet your goal?

Victoria Dubuc
I would say it's never too late to start saving for retirement. And even if you start later, saving something, it's always better than saving nothing.

11:47
That said, the reality is that the percentage of your income you need to save each year increases significantly the later you begin. If you find yourself starting later, you may need to adjust it in other ways. This could mean that you're going to be working longer than you originally planned, or you can cut back on your desired lifestyle to meet your goals.

Amy Laburda
I think that also leads us a little bit toward Social Security. Now

12:15
Social Security could be its own episode. And in fact, I have already talked with one of our colleagues about that. So I'll link that in the show notes. But I think we do need to talk about it a little bit here in the sort of greater context of retirement planning. I'll say, as far as I'm aware, none of my grandparents saved much for retirement in their working lives. I think they were mainly living on Social Security benefits, and maybe some help from their family, in their older years. And I don't think that was so uncommon in their generation. But

12:44
if listeners pay attention to the news, they may have reason to be worried about Social Security's future. The report from the agency's trustees in 2024 projected Social Security's trust fund reserves would run out in 2035, which is not that long from now. Now that doesn't mean, if it happens, that Social Security is going to vanish entirely in a decade, but it does mean that promised benefits might be cut or other measures might be taken to keep the program functioning. So

13:12
as a financial planning professional, how would you encourage a client to think about Social Security as part of their overall retirement planning strategy?

Victoria Dubuc
So it's important to understand that Social Security was never designed to fully fund retirement in the way we think about it today. Originally, it was meant as a safety net for workers who earned too little to save enough on their own, ensuring they wouldn't face destitution in retirement.

13:40
That said, Social Security is still a critical component for many retirees. The challenge today is that fewer young workers are contributing to the system, while the baby boomer generation is retiring and living longer. Additionally, with people having less children now and also having them later, the pool of future contributors is shrinking, which puts more strain on the system. Given all this, while we can’t

14:09
predict the future of Social Security with certainty, my advice would be that it's best not to rely on Social Security as your sole source of income in retirement, especially if you don't have other options. I would say planning to supplement it with personal savings and investments will give you more financial security and flexibility in the future.

Amy Laburda 14:34
I will say I'm grateful that I am not a politician who has to figure out what to do with Social Security going forward. But it sounds like on a personal level, it's a thing that's nice to have, but should not be the main pillar of your retirement plan.

14:49
So apart from Social Security, how should you structure your plan? We've mentioned investment accounts and such, but I think most people know that there are other options out there. What kind of things would you expect a client to maybe have in their retirement planning portfolio?

Victoria Dubuc
When structuring your retirement plan, it's often a good idea to start with the options available through your employer. These employer-sponsored plans, like for example a 401(k), tend to offer several advantages, such

15:19
employer contributions, higher contribution plans, or various tax benefits. In our book chapter, which I co-authored with my colleague Thomas, we go into greater detail about different types of retirement plans you're most likely to encounter. These insights can help people navigate their choices and build a plan that aligns with their goals.

Amy Laburda
I can attest the book chapter goes into a lot of detail, so I definitely commend it to our listeners.

15:46
I think there are a lot more kinds of plans out there than a lot of people are aware of, just because of the variety of things employers are trying to do with them. But let's start with a really common one. You mentioned the 401(k), and I think that's one that a lot of workers encounter in their life. So how does a 401(k) work?

Victoria Dubuc
I agree, this is one of the popular ones. A 401(k) is what's called a defined contribution plan.

16:11
This means that the employer doesn't guarantee a specific level at retirement. Instead, employees decide how much to contribute and, in many cases, employers will match a portion of those contributions. This differs from what's called a defined benefit plan, like a pension, where the employer actually promises a certain benefit amount in the future.

16:37
There are some great advantages of a 401(k), some of which include: portability, so if you leave your job, you can transfer the balance to another retirement account without penalties. It also offers flexibility, such as allowing you to borrow funds or make early withdrawals. Also some addition to, or a great advantage of 401(k)s — some plans offer you to choose a Roth 401(k),

17:07
where contributions are made with after-tax dollars instead of pre-tax income. While this doesn't reduce your taxable income upfront, it allows for long-term tax-free growth, and distributions in retirement are not taxed.

Amy Laburda
So besides not funding it enough, which is obviously a thing that would be a downfall with all kinds of retirement plans,

17:31
are there any other particular hazards to watch out for with a 401(k), or any particular drawbacks that people might run afoul of?

Victoria Dubuc
Yes, I think there are a few other important factors to watch out [for] with 401(k)s. I would say one key drawback is that, unlike defined benefit plans, 401(k)s place the investment risk on the employee. So you're responsible for making sure your investments align with your retirement goals. You should also keep an eye out

18:00
for any changes to the plan made by your employer. For instance, some employers might reduce or even eliminate matching contributions, which means you could end up covering most of the funding responsibility yourself. And lastly, I would say it's also important to be aware of fees. Some 401(k) plans carry high administrative and investment fees, which can eat into your returns over time.

18:28
So taking the time to understand and manage these fees can help ensure you're maximizing your retirement savings.

Amy Laburda
While we're talking about specific retirement plans for a minute, let's stop and talk about individual retirement accounts, or IRAs, which I think a lot of people also run into. You mentioned Roth 401(k)s, and I think Roth IRAs are also on a lot of people's radar. So what are IRAs and Roth IRAs?

Victoria Dubuc
Sure. IRAs are a very popular tool nowadays.

18:57
They offer a way to save for retirement with tax advantages outside of employer-sponsored plans. You can also use an IRA to supplement your employer retirement account. There are two main types: the traditional IRAs and the Roth IRAs. They both have an annual limit of $7,000 for 2025. For traditional IRAs, if you don't have a workplace retirement plan,

19:26
you can deduct your full contribution. But if you do have a plan at work, the deduction you can take will be based on your taxable income. Also, the funds in a traditional IRA aren’t taxed until you withdraw them, although there's certain penalties for withdrawing before age 59 ½. And lastly,

19:51
which is very important, you must start taking required minimum distributions at age 73. On the other hand, for Roth IRAs, the contributions to these types of accounts are not tax deductible, but the distributions are typically tax-free. Also, you can contribute if your taxable income is below a certain threshold, and you can withdraw your contributions (but not the earnings) at any time penalty-free.

20:20
And lastly, I would say it's important to understand that, unlike a traditional IRA, there are no required minimum distributions during the account holder’s lifetime.

Amy Laburda
OK. So say you're someone who is eligible for both a traditional and a Roth IRA. Is one usually a better choice than the other, or does it just depend on the individual situation?

Victoria Dubuc
It depends on your current and future tax situations.

20:47
For example, if you expect your tax bracket will be lower in retirement, a traditional IRA might be a better choice, as it allows you to defer taxes until you withdraw the funds. But you could also contribute to both a traditional IRA and a Roth IRA. But keep in mind that the contribution limit applies to both accounts combined. So for example, if the annual limit is $7,000,

21:15
you could contribute $4,000 to a Roth IRA and $3,000 to a traditional IRA, but you cannot contribute $7,000 to each account.

Amy Laburda
So we've got Social Security, we've got IRAs, and we've got employer-provided plans in our toolkit. But what about people who don't have an employer because they are freelancers or they're running a business of their own?

Victoria Dubuc
That's a great question. For freelancers and business owners, there are several retirement options to explore.

21:45
They have SEP IRAs or a Solo 401(k). However, the best plan will depend on whether you have employees, how much flexibility you need and how much administrative work you're willing to handle. But because some of these plans can be complex, it's a good idea to consult with a financial planner so they can help you navigate the retirement options, especially if you're self-employed.

Amy Laburda
Makes sense. So I think it’s fair to say, probably, that

22:15
no one person is likely to encounter all of the different ways to save for retirement that we've talked about, or certainly not all of the ways that you mentioned in the book chapter. Is that fair?

Victoria Dubuc
That's correct. I know it can feel a little bit overwhelming to have so many options, but you only need to focus on retirement strategies that are available to you and that are relevant to your specific situation.

Amy Laburda
OK. So let's make up a hypothetical saver to talk about for an example. Say she has

22:44
a 401(k) plan at work, and she set up a Roth IRA for herself. And then she also has a standard taxable brokerage account. She's worked out the amount that she wants to set aside every month for her retirement savings goal. But how should she go about allocating that between her accounts?

Victoria Dubuc
That's a great example. I would say the first step in prioritizing retirement savings is to take full advantage of any employer match. She should contribute enough

23:11
to her 401(k) to secure the full match if possible. It's essentially free money she shouldn't leave on the table. Next, I think she should focus on securing any available tax benefits, which in this case means contributing to the Roth IRA up to the annual limit. Once she has maximized her contributions to tax-advantaged accounts, any remaining funds can go into her taxable account.

23:37
I would say lastly, it's also important to consider how certain assets are allocated across these accounts for optimal tax benefits. A financial adviser can help ensure she's looking at her entire portfolio and making these decisions that align with her broader financial strategy.

Amy Laburda
So in our earlier episode with our CIO, Ben Sullivan, we talked about making sure that you're thinking about your sort of investment plan long-term, but also

24:04
big-picture, right? So you're not just managing your 401(k), and then you shut that away and you're managing your IRA. You're thinking about your entire portfolio as one big thing.

Victoria Dubuc
That is correct. Exactly. That — it's very important to see everything as a… in a holistic way.

Amy Laburda
So obviously, as we've mentioned a few times, you wrote a chapter in our book on retirement planning. Other people have written entire books just on that topic. So we're certainly not going to cover everything in our conversation today. But

24:34
that said, are there any particular pitfalls that you see or have heard about as a financial planner that people should watch out for when they're approaching their retirement planning?

Victoria Dubuc
I think the biggest pitfall is simply not getting started. One surprising thing I learned while working on this chapter was that 13% of Americans have no retirement savings and another 6% have saved $5,000 or less, which...

25:02
So nearly 20% of Americans have little to no savings at all. That's an alarming number. That's why it's so important to get started, even if you can only save a small amount. The second pitfall I would add is failing to leave your money alone to grow over time. So avoid borrowing from or making early withdrawals from your 401(k)s or your Roth IRAs or other retirement accounts, because the money can't grow if you're taking it out.

25:31
Compound interest is a powerful tool, and it helps your money grow exponentially the longer you leave it invested. Another common mistake, especially for those closer to retirement, is applying for Social Security benefits as soon as possible. While this may make sense for some, it's important to understand that starting benefits at, let's say age 62,

25:56
will result in smaller monthly payments than waiting until you're 90*. So, weigh your life expectancy and immediate needs for funds before making this decision. And lastly, and this is really important, don't panic and pull assets out of the market when it drops. This can lock in your losses and often means missing out on any future recovery.

26:22
It's completely natural to feel anxious, but if you stay invested, your portfolio will recover along with the market.

Amy Laburda
Sticking to that investment plan is a thing we definitely talked about before, but it makes sense here, especially with a goal with such a long timeline. I will also commend our earlier episode on Social Security about when to apply for benefits. We had a longer conversation about that that I can point listeners towards as well. But

26:47
all of that makes perfect sense. And all of those are things — I can understand why people would fall into… We talked earlier about [how] getting started can feel daunting. Getting started can feel like, “Oh, that's so far away.” But the earlier you can get going, the less big of a swing you have to make month to month, which makes sense. So we've covered a lot of ground already, but I like to end an episode by kicking it back to the guest. So

27:11
is there anything we didn't talk about today, or that I didn't ask you about, about retirement that you think listeners should know or that you think is worth keeping in mind as they come to this sort of big goal that I think a lot of people have to share, just because of the way that our working lives naturally come to an end one day?

Victoria Dubuc
Before we wrap up, I would like to emphasize the importance of saving for retirement. I know that some of you might be feeling uncertain about the future, and to some extent that's

27:41
understandable. We can't control factors like inflation, market fluctuations or how long you live, or the medical care we'll need down the line. But that's not a reason to leave our retirement to chance. So I strongly encourage people to focus on the things you actually can control. You can control your discretionary spending; your ability to earn, at least to some extent;

28:08
and how to invest your savings. So even small steps now can make a big difference down the road.

Amy Laburda
It's heartening to remember. Victoria, thank you so much for sitting down with me today. It was a pleasure to have you on the podcast.

Victoria Dubuc
It's been a pleasure, Amy. Thanks for having me.

Amy Laburda 28:25
“Something Personal” is a production of Palisades Hudson Financial Group, a financial planning and investment firm headquartered in South Florida. Our other offices are in Atlanta; Austin; the Portland, Oregon metropolitan area; and the New York City metro area. “Something Personal” is hosted by me, Amy Laburda. Our producers are Ali Elkin and Joseph Ranghelli. Joseph Ranghelli is also our director, editor and mixer. Our firm has written two books:

28:54
Looking Ahead: Life, Family, Wealth and Business After 55 and The High Achiever's Guide to Wealth, which offers advice for younger professionals, entrepreneurs, athletes and performers. Both books are available on Amazon, in paperback and as e-books.

* NOTE: As explained in our Social Security episode, there is no benefit to delaying Social Security payments after age 70. For more, listen to that episode or visit the the Social Security website.