3 Stages of Financial Planning for Your Retirement

[fa icon="calendar"] December 14, 2015 / by Edgar Castro

glass_jar_of_retirement_moneyFor most people, one of the most challenging areas of life are finances – especially saving for retirement. It’s never too late to take action and start doing something, but you’ll have reap far better benefits the earlier to start. Many experts agree there are at least three retirement stages during a lifetime.

Stage One – Ages 25 to 45

This stage offers the most challenges and the most opportunities. During this stage, many will be entering the ministry, getting married, having children, and perhaps having the most debt.

Most experts agree that a retirement plan should be started as soon as possible. Listed below are suggestions that most advisors suggest during this first stage:

  • Start a retirement plan early with the first job. Most people will spend all the income they receive. That’s why it’s important to set aside monies for a plan before one gets use to spending it. The future often brings about emergencies, such as marriage, down payments for homes, childbirth, braces, etc.—all of which may prevent a plan from beginning or such a fund could be used to borrow against for such emergencies.
  • Be systematic and dedicated for doing the right thing. Most people never regret having monies available when they need it the most.

  • Buy necessities, not desires. We’ve seen a couple, age 35, who have systematically saved, bought necessities, and still have around $350,000 in savings. They don’t boast of a large income but they started with a plan, invested well, and now have the availability to do more things in life. It’s important to stay focused and not always try to keep up with the Joneses.

  • Increase contributions as often as possible, even in $10 increments. We’ve seen examples of a person increasing their retirement amount by $10 a month every year and actually have more money saved than anyone else at work (people making 7 to 8 times their income!). This person was a custodian. They really understood the importance of compound interest!

  • Use credit wisely. Too many times, young couples have too much credit card debt, robbing them from potential savings and ruining their credit. Pay off the highest interest items first. Make a plan to be as free from debt as one can.

Stage Two – Ages 45 to 55

Most people at this stage have looked back on their past and evaluated whether they planned well for their future retirement. Many have their children grown or in college, have reduced mortgages, and may be making more income. Many ministers look for “catching up” with any discrepancies from their original retirement plan. Here are a few suggestions from financial advisors during this stage:

  • Review retirement strategies. Has the retirement plan worked or does the retirement plan need revision? Many ministers in this age bracket find themselves doing little or nothing for retirement.

  • Set a goal of having the final contribution date at age 55, not 65 or beyond. Too many people believe they will have many more years ahead of them, being able to have earning power up to age 65 and beyond, but too often health problems and church financial problems prevent this from happening.

  • Pay off any existing credit card debts and other high interest accounts. These can “rob” a person from placing the same amount of money into savings. Why make money for credit card companies when you can make and save money for yourself!

  • Look into future home arrangements. Many ministers still live in parsonages. What happens when a minister leaves the church or retires? Plan ahead while there’s time.

Stage Three – Ages 55 to 65

People in this age group often become frustrated, looking back on “what could have been” and frantically try to put something away, knowing it may not be enough. There are some distinct goals that should be evaluated for people in this age group. Listed below are a few suggestions:

  • Evaluate your retirement goals and options.

  • Increase contributions if possible.

  • Change investment options to fixed earnings to be safe. Some have ignored stock sells and were “stuck” with a lower stock price, forced to hang onto the stock in hopes of it increasing or just “breaking even.” We have seen people wait 7 to 8 years and finally sell, only to get half the value they could have had 10 years earlier. Be smart and safe. Plan for the worst – not earning as much versus loosing everything!

  • Look and plan for future home arrangements. As mentioned in stage two, many ministers still live in parsonages. Time is running out if there has been no progress made for future home arrangements.

  • Look into different annuity payouts with various companies. Many companies offer high rates of return but low monthly payouts. One can “rollover” their funds without tax penalties into a higher rate of return on their monthly distribution. Be smart and look around. Many have generated more monthly income by just switching companies.

What types of retirement plans are available for ministers?

     a. IRA
     b. Seph IRA
     c. 403b
     d. 401k

  • Answer: All the above and others. Any matching fund like a 401k is preferable but ministers can also contribute to a 403b that is tax-deferred, can be matched with employer contributions, and can be increased regularly. The 403b has loan privileges, which can be loaned out for emergencies without claiming income for the immediate year. Loans for home purchases can have a 30-year payback provision. If you claim a housing allowance, many 403bs can continue allowing you to claim the same housing allowance even after you start receiving your monthly retirement income. Please check with your tax consultant or advisor on this option.

  • Tax-deferred savings offer greater benefits than traditional savings accounts at a bank or savings and loan.

Most peope aren't financial experts. But it's important to think, read and do something about you retirement.

Proverbs 21:20 (KJV) “There is treasure to be desired and oil in the dwelling of the wise; but a foolish man spendeth it up.”

Topics: Equipping