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Nick’s long drive to retirement

Do you know any 24-year-old who saves for retirement at a rate well above the national average, appears immune to the pressures of a spend-happy society, and still enjoys a fun and fulfilling lifestyle? Meet Nick Havlik.

your$ summer 2010Nick Havlik, 24, is serious about saving. In 2008 when he started teaching in Brookfield, he was putting upwards of 40% of his salary into retirement savings accounts. No, that’s not a typo. He has since settled on 20%—still well above the national average (currently at 6%) and the all-time high of 14.6% (1975) [US Department of Commerce Bureau of Economic Analysis]—but only because he purchased a duplex and has a loan from graduate school to pay off.

As strange as it might seem for a 24-year-old to be this focused on saving for retirement, it makes perfect sense to Nick. He knows exactly what he’s doing. His strategy is to front load his retirement savings and let compounding do the heavy lifting to build his nest egg.

“It is unusual. The likelihood of anyone in their first few years of their career opening up a retirement account is pretty low,” says Sharon Langdon, a Worksite Benefit Consultant at WEA Member Benefits. “When members start out they are focused on the job, the kids, the school. Their personal stuff gets put on the back burner.” Langdon has spent the last four years educating and consulting with Wisconsin public school employees about retirement savings. “One thing I hear regularly from members is, ‘I wish I had started saving earlier.’”

According to a 2009 survey released by the Consumer Federation of America and the Employee Benefit Research Institute, a declining percentage of Americans believe they are saving enough for retirement. The survey of more than 1,000 adults found that more than half of workers feel they are behind schedule for planning and saving for retirement.

As public school employees, your employer contributes to the Wisconsin Retirement System on your behalf, covering a portion of your retirement needs. But that may not be enough to replace the needed income in retirement, especially for those further out. According to Michelle Slawny, a CERTIFIED FINANCIAL PLANNER™ who provides an array of financial planning services at Member Benefits, “The retirement landscape is changing. You can’t expect to retire based on how others have done it in the past.”

The Center for Retirement Research found a clear shift from a defined benefit plan where workers receive pension benefits—based on years of service and final salary—to a self-funded model where individuals are responsible for their own savings. “Members need to be aware and plan ahead. No one wants to be surprised in the end,” Slawny adds.

In addition to reaching your retirement goals faster, saving earlier on in your career may allow you the flexibility to reduce your contributions later if you decide to cut back your work schedule or take a leave of absence for personal or family reasons.

The plan is born

Nick had no idea that one of the most important take aways from his student teaching experience would be about his future financial security. “I sat down with my cooperating teacher to talk about a variety of things regarding teaching. I was expecting him to say ‘go get your master’s, make sure you have detailed lesson plans, and be active within the school.’ While we eventually got to these topics, the first three things we talked about were Roth IRAs, 403(b)s, and how I planned to supplement my income after I retire. I realized that day that if I started [saving] as soon as possible, the burden would be lessened and I would have a good chance of retiring at an age when I could enjoy my life.”

For Nick, being able to save is about choices. It’s about being frugal. Saving wasn’t drilled into him by his parents as you might expect, but he says a sense of frugalness was part of the fabric of life in the small town of Westby where he grew up.

“Saving for retirement does more than just create a resource you can use for income in the future,” suggests Slawny. “It also forces you to live on less than you earn, meaning you need to replace less income during retirement, thus increasing your chances of a successful retirement.”

Time—The investor’s best friend

Nick Havlik golfingCompounded interest. Time value of money. These concepts are not wasted on Nick. He recalls learning about compounding in high school. Now, he’s applying the concept with fervor. “It’s not complicated. You can do a quick Google search or use any of the many online calculators and see how important it is to save early.”

Compounding is when earnings on your investments are reinvested in your account. The reinvested earnings may also have earnings, and then those earnings are reinvested and … It’s said that Albert Einstein called compound interest the “eighth wonder of the world.” Any small amount you can start contributing now could benefit you more than larger amounts you contribute later on because of compounding.

While it may not be complicated, saving for retirement—especially to the degree Nick is saving—does take discipline and a lot of foresight.

Nick’s money decisions are accounting for the future value of today’s dollar and taking advantage of this once-in-a-lifetime opportunity. “Every year that slips by, you can’t get back. You can play catch-up later, but it will cost you more,” Langdon says. “The cost of procrastinating is steep.”

However, if you haven’t started saving or don’t think you’re saving enough, don’t despair. “There’s no better time than today. Give us a call and we’ll help you get started,” Langdon encourages. 

The sacrifice

“There are people who think I’m crazy, that I’m missing out. But I don’t think I’ve given up a lot. While I don’t take extravagant trips or spend money on toys, I still live comfortably and don’t need to pinch pennies to get by.”

Nick is unapologetic for choosing to vacation in Northern Wisconsin in lieu of more exotic destinations like Cancun or South Padre Islands. “Our great state has plenty of opportunities for fun—inexpensive fun.” But, it’s not like he doesn’t travel. This year, he plans to vacation in Montana. He also has a summer job with the PGA tour that takes him to a variety of places.

“My friends say they can’t afford to save, but I tell them you can’t afford not to. You can find the money if you’re determined enough.” For example, he chose to drop cable and watch TV through the Internet. He says this pay-as-you-go approach saves him about $400 a year. “Whether it’s cable, a three-dollar cup of coffee, or an expensive toy or trip, it all adds up.”

Granted, Nick doesn’t have the responsibility of a family yet. His recent purchase of a duplex did impact his rate of saving, but he sees the purchase as another investment. Plus, having a tenant offsets the mortgage payments.

Rolling with the market

Market volatility doesn’t bother Nick. In fact, it’s part of his strategy. He started saving when the market was at its peak, and when it dropped in 2008, he seized the opportunity, increased his contributions, and bought low. He sticks with his game plan of putting money away each paycheck, regardless of what the market is doing. “I’m an aggressive investor for now. My money will be sitting in the market for another 35 years. I’m sure I’ll change my strategy as I get closer to retirement, but if I can stay committed, keep my eye on the ball, I’m confident I will attain my goals.”

MEMBER PROFILE

Nick HavlikNick Havlik teaches Applied Technology and Engineering at Brookfield East High School. “The best part about being an educator is seeing kids struggle with a concept and then being there when they ‘get it.’” Nick has committed himself to saving as much money as he can for retirement before he reaches 30 to maximize the impact of compounding. He enjoys outdoor activities including fishing, hunting, camping, golfing, and boating—all things he plans to actively participate in when he retires.