Money Matters

Retirement Planning for Young Professionals in San Diego

If you’re a young professional in San Diego, between your 20s and 40s, you’re in your prime wealth accumulation years with the greatest potential to grow your assets. Planning for retirement may feel far away but you’re in an advantageous position to build significant wealth for the future. Still, data shows that 46% of millennials, currently between the ages of 28 and 43, don’t believe they’ll be financially ready for retirement when it comes. 

San Diego offers a unique blend of high-paying careers in industries such as technology, engineering, biotech, and healthcare. There is significant income potential, from Qualcomm to Illumina to lucrative startups. CCMI frequently works with young professionals and executives at local companies, giving us insights into their plans, benefits, and intricacies. For example, we’re uniquely positioned to help RTX employees, which includes Collins Aerospace employees, navigate their RTX retirement and benefits. Kim Benson is a previous employee who is familiar with the RTX 401(k) plan. She often advises past colleagues regarding the program and shares her insights into common 401(k) situations employees may face.

If you’re leveraging opportunities in a high-income sector, making informed financial decisions now is critical to building long-term wealth and achieving your goals, allowing you to thrive personally and professionally.

The High Cost of Living in San Diego

Living, working, and retiring in San Diego has unique benefits and challenges. Along with the potential for a high-earning career, overall, San Diego also has a 44% higher cost of living than the rest of the country (as of June 2024). High taxes are another concern. California has a high state income tax and is one of a handful of states that taxes military and private retirement income

While the cost of living is higher than the national average, one expense ultimately becomes a deciding factor for most: housing. With an average home price of nearly $1 million and monthly rent tracking just above $3,000, housing in San Diego is 123% higher than the national average (as of June 2024). According to Investopedia, housing is one of the top three spending categories for millennials, who pay 100% more on average for homes than their parents’ generation.

Many factors go into deciding whether you want — or can afford — to retire in San Diego when the time comes. Balancing your living expenses and retirement savings now while considering whether you’ll retire in San Diego or elsewhere are critical questions, though they might seem far off. Let’s discuss strategies you can implement now to plan ahead for retirement.

Build Healthy Financial Habits 

Establishing good financial habits sets the foundation for long-term financial health. Habits such as saving, budgeting, and investing have long-term benefits that can also help you navigate challenges later. Here are a few strategies to think about:

  • Goal Setting: As a young professional, you likely have multiple goals you hope to achieve before retirement. Develop a comprehensive view of your goals that considers your near-term goals, such as buying a house or family planning, and your long-term vision, such as retiring in San Diego or traveling.
  • Debt Management: Significant debt may affect your ability and confidence to begin saving for retirement. Managing and reducing your debt now frees up more resources to put toward your goals, investments, and retirement savings. Your debt strategy should include tactics to manage your liabilities while continuing to save toward your long-term objectives.
  • Emergency Fund: We recommend a budget that includes building an emergency fund with three to six months of living expenses. A medical event or employment gap could impact your ability to save toward retirement. A rainy day fund is a critical cushion against unexpected expenses while helping to prevent your retirement savings from derailing. 
  • Tracking Expenses: Determining if you have enough saved for retirement comes down to your expenses and income. Now is a great time to focus on your existing and anticipated spending, when you plan to retire, and whether you intend to maintain your current lifestyle. These factors will inform your financial decisions, ensuring you have enough savings for retirement.

Begin Saving (The Earlier, The Better)

While it’s never too early to start saving for retirement, there are instances when it may be too late, extending how many more years you must work or affecting your spending and lifestyle. We recommend implementing a consistent savings strategy as early as possible to take advantage of compounding interest and tax strategies that could enhance your long-term savings. Even small, consistent contributions can lead to significant savings as you near retirement. Here are key strategies to consider:

  • Maximize Your Retirement Account Contributions: If you have stable or excess income, take advantage of opportunities throughout your prime-earning years, such as contributing to an employer-sponsored 401(k) program, especially if your employer offers a match. Early contributions give your investments longer to grow, increasing the benefits of compound interest.
  • Understand Your Benefits: Many publicly traded companies offer stock options as part of their employee benefits. In San Diego, with its many biotechs and startups, many employees of these companies have stock options and/or grants. Additionally, companies like RTX offer specific strategies that may be less widely known by employees, such as opportunities for a mega backdoor Roth conversion. Strategies for managing your benefits can be critical in lowering your taxes and should be discussed with a retirement planning expert to optimize opportunities and avoid costly tax mistakes.
  • Consider Tax-Advantaged Accounts: Accounts such as 401(k)s, health savings accounts, and IRAs provide various tax benefits to enhance your overall savings, such as reducing your taxable income or tax-deferred growth. Note that each type of account has distinct tax and withdrawal implications. For example, when deciding between a Roth IRA or a traditional IRA, you’ll need to consider your current and projected income and tax bracket, and understand the potential tax liabilities of withdrawing from pre-taxed retirement accounts. Consult a professional to determine which accounts suit your income and goals.

Develop an Investment Strategy

A sound investment strategy is critical for achieving long-term financial goals. We’ve already mentioned that beginning investing as early as your 20s and 30s gives your savings longer to grow. This is crucial, considering the earlier you plan to retire, the longer your savings will need to last. Early investing also comes with other benefits, including:

  • With retirement decades away, you may consider leveraging more aggressive investment strategies that may yield higher returns.
  • You have more time to recover from market fluctuations.
  • You have a greater ability to adapt to changing circumstances.

Here are other strategies to consider:

  • Asset allocation is how you distribute your investments across different asset classes according to your goals, risk tolerance, and time horizon. It’s essential in helping reduce risk, offsetting poor-performing assets in one area. It also helps to align your investments with your goals. For example, as a young professional with a longer time horizon, you may invest in high-growth asset classes with potentially more risk. Conversely, pre-retirees may adjust their allocations to provide stability and safeguard their savings before retirement.
  • Diversification is how you spread your investments within asset classes, for example, by industry or geographic region. It’s important to further manage risk and offset poor-performing assets. It’s essential to diversify to avoid over concentration in any one asset class, which could significantly impact your savings if a company crumbles or there is market volatility.
  • Sustainable investment strategies are important to millenials, guiding their spending and investment choices. According to one study, “the average investor in their 20s or 30s was willing to lose between 6% and 10% of their investments to see companies improve their environmental practices.” Fortunately,  through environmental, social, and governance (ESG) investing, you can reach your financial goals while doing your part to improve the planet, promote sustainability, and serve a host of other social causes important to you. What is ESG investing? Learn more here.

A financial planner can help guide you through your options based on your preferences and values to help you manage risk, create a diversified mix of assets tailored to you, and rebalance periodically to ensure you stay on target.

Maximize Income

Maximizing your income early in your career is critical in building your long-term future, providing more resources to save toward retirement, pay down debt faster, manage inflation, invest, and more. Here are a few actions you can think about:

  • Career Advancement: Enhancing your skills increases your marketability, opportunities, and negotiating power.
  • Additional Income Streams: Strategies like starting a side business, strategic investments, and income from real estate can provide extra stability and resources to save on your journey to retirement.
  • Tax Strategies: A tax professional can help you identify tax-saving strategies, such as charitable donations and tax-loss harvesting, to further reduce your taxable income and liabilities.

Seek Professional Advice

There are many benefits of partnering with a professional. A CERTIFIED FINANCIAL PLANNER™ professional can help you build a financial plan and retirement strategy to manage your income and portfolio assets. Additionally, once you have a clear picture of your income and have refined your anticipated spending and healthcare expenses in retirement, a financial advisor can help determine if your current retirement plan is on track. All these strategies can affect your lifestyle in retirement.

Financial planners also consider planned and unplanned events to optimize adaptability. With the unpredictability of life, your plan may veer off track with events out of your control. A financial planner can help you stay the course or adjust with your total financial picture in mind. Learn more about what to consider when choosing the right advisor for you.

Preparing Young Professionals for Retirement: How CCMI Helps

As a young professional building your career, you have options — and time — on your side. The way you choose to grow and manage your wealth today can dictate your current lifestyle, as well as the one you’ll enjoy later in life. At CCMI, we help you establish a solid financial foundation so you can confidently focus on your career ambitions. We align your steady income growth and professional advancement with your goals for your family, future, and retirement. 

Effective retirement planning begins early, with your income and investments significantly affecting your financial security later in your golden years. We can guide you through the following:

  • Invest your excess cash flow with purpose during your peak professional years to maximize the growth potential of your retirement funds
  • Prioritize your assets to buy your first home, invest for the future, save for children’s education, or navigate an emergency, all while keeping your retirement goals in mind
  • Manage your stock options and other corporate benefits as your income grows
  • Protect your family by building an insurance plan to adequately cover your loved ones
  • Prepare an estate plan that proactively protects your children from the unexpected
  • Explore tax-efficient strategies and tactics to increase and optimize your retirement savings and manage your tax burden now and in the future

Focusing on these areas and taking early action can help secure an ideal retirement while enjoying your present. Please contact us if we can help you on your retirement journey.

PLEASE SEE IMPORTANT DISCLOSURE INFORMATION at https://myccmi.com/important-disclosures/

CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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