As the Federal Reserve's stance on rate cuts remains uncertain, investors are evaluating the potential impact on their retirement portfolios. J.P. Morgan Asset Management Chief Retirement Strategist Michael Conrath joins Yahoo Finance Live to discuss why individuals need to "get started now" on their retirement savings.
Conrath emphasizes that "the biggest thing is to have a plan," noting that more people plan for vacations than retirement. He advises that the first step is considering how much you will need, then factoring in "longevity" and the retirement's projected duration.
Conrath highlights several key developments available in 2024 that can aid in retirement planning. He first emphasizes the importance of emergency savings accounts, calling them "the bedrock" to protect your retirement. Secondly, he notes that those making student loan payments may be eligible to receive retirement contribution matches from their employers.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Angel Smith
Video Transcript
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JULIE HYMAN: With tax rates expected to increase in 2025 and with Fed cuts on the horizon later this year, may have got you thinking a little more about long-term plans and your all important retirement strategy. JP Morgan has put together a guide to navigating that in 2024 and how to hedge unexpected shocks in the market and elsewhere.
The author of that report is Michael Conrath And he is joining us right now. Mike, thanks for being here.
MICHAEL CONRATH: Thanks for having me.
JULIE HYMAN: So, you know, it's always-- it feels like it's always uncertain to a certain degree in the broader world and in the market. And so how should people be thinking about their retirement strategy given that uncertainty, especially right now with rates?
MICHAEL CONRATH: Well, I think the biggest thing is to have a plan. By the way, did you know that the typical person spends more time planning a vacation than they do planning for retirement?
JOSH LIPTON: It's a lot more fun.
MICHAEL CONRATH: It's a lot more fun. And it's something that short-term, we live in immediate or instant gratification society. Retirement could be years, decades in the future.
But it doesn't have to be complicated. Step one is understand how much you need. And that starts with thinking about, OK, how much of my income do I need to replace?
And there's a lot of industry rules of thumb out there. The old industry rule of thumb, 70% to 80%. That's broken for a lot of families.
In fact, we see many individuals needing 90% income replacement. So you need to factor that in and think about your spending.
Step two is you've got to think about your time horizon like any investment decision. How long? And that's your longevity. How long are you going to live? And it's not uncommon to have 30, 35 plus years in retirement without a paycheck.
JOSH LIPTON: Is that average now? How many years? 30 years?
MICHAEL CONRATH: 30 plus years easily.
JULIE HYMAN: So back up for a second. So you're telling me I need 90% of my current income in retirement. And I'm going to need it for 30 years.
MICHAEL CONRATH: Not necessarily. It's usually the earlier. So the good news--
JULIE HYMAN: That's pretty daunting.
MICHAEL CONRATH: Yes, it is daunting. But the good news really is that's typically the earlier years in retirement. And what we see, and we actually look at Chase household data, completely anonymized.
But we see in the earlier years of retirement, people are on the go. They're out. They're spending, enjoying life, traveling. That's where you see spending at its peak.
Then it does taper off. But then there's an inflection point later on down the road where health care costs enter the picture. So you have to think about all these things.
JOSH LIPTON: And, Mike, you also talked about how SECURE 2.0, which I think was passed-- that was what late 2022.
MICHAEL CONRATH: Yeah, the end of 2022, Josh.
JOSH LIPTON: That continues to roll out. So explain the implications of that.
MICHAEL CONRATH: Yeah, so there's a few key things this year to be mindful of that are available in 2024. One is the availability of in-plan emergency savings accounts. And that's super important because we view that as the bedrock, the foundation of having that retirement plan.
If you don't have emergency savings, that's where we see the bad behaviors take effect, where people start to look at their 401(k) as their piggy bank. So that's a very important feature.
The second thing relates to student loans. So plan sponsors or employers can now offer a match on a workplace retirement plan contribution if that individual is making student loan payments. So, again, when faced with the choice of having to put one marginal dollar into my 401(k), or pay off my student loan, that's no longer a dilemma.
JULIE HYMAN: So, I'm sure you deal with a lot of folks who are sort of further along in their careers. For people who are just starting in their careers, who are many of them probably not thinking about retirement planning at all, what's the single most important piece of advice you would give them?
MICHAEL CONRATH: The single most important thing, Julie, is to get started today. Don't wait. And importantly, small contributions add up to meaningful dollars over time.
And once it's done automatically, such as through your workplace retirement plan, you start to live or budget around that. You expect that money to come out, or put another way. You don't even see it. So it's an automatic savings that's built into the plan.
JULIE HYMAN: And then to come back around to interest rates and the cuts to interest rates that we are anticipating. Are there any implications for how people should be thinking about how they're saving?
MICHAEL CONRATH: Yeah, I mean, generally, long-term, no. But I think right now, we have a lot of retirement savers that are not investors. And I think there's a difference between saving and investing. They're sitting in cash. They're waiting on the sidelines.
And, yes, cash is paying a decent amount historically. But that's not going to be the case forever. So the important thing is get invested, get that cash off the sidelines, especially if you do have a long-term time horizon as it relates to retirement. And have to rely on that income for life beyond that.
JOSH LIPTON: All right, Mike. Thanks for joining us today.
MICHAEL CONRATH: Thanks so much.
JOSH LIPTON: Hope mom and dad were listening honestly. They usually do. They tell me.
JULIE HYMAN: Not just mom and dad. I hope that all of the younger people in this building and everywhere are listening as well.
