Winter 2012 | Volume 110 | Number 662
Saving Simplified
Photo Credit: Kick Images/Getty Images
Use our retirement countdown tip sheet to find out what you can do to save.
by John Caulfield
Quick: Think of a word that captures what you hope to do during retirement. Travel. Volunteer. Relax. Did any of those activities come to mind?
Now think again: What's going to prevent you from making those dreams happen? Money. That's probably one word that flashed to mind.
So what's the solution?
First, let's break down the problem. One challenge is simply not having enough money or a way to earn more. With all the competing demands for your dollars, you may feel you don't have enough to save or that your hard work saving won't add up to much. In fact, a lack of money tops most people's list of obstacles to retirement savings.
The next challenge: Are you doing the right things with the money you have? "Some people don't trust that their investing will turn into something," observes David Wray, president of the Plan Sponsor Council of America. Many wonder what they should do with any extra money they have: put it in their 401(k), pay down their mortgage or just stick it in their savings account.
Now, let's talk about the solution. Saving for retirement doesn't have to be stressful – it simply requires a little discipline and some good choices along the way. "It's the little things that count," says Jim Shuttleworth, a Thrivent Financial representative in East Longmeadow, Massachusetts. "Like shopping for groceries with a list or going to the mall with a purpose instead of when you're just bored."
Check out our grids below. We've asked Thrivent Financial representatives and other retirement experts for their best advice for people of different ages and financial situations. As you'll see, the amount of money you have available to save for retirement may go up and down throughout your life, but there are always things you can do to protect your future. As Bruce Ensrud, a Thrivent Financial representative in Golden Valley, Minnesota, tells his members: "Don't stick your head in the sand. Let's make some progress."
40 Years From Retirement
No matter how far away retirement can seem, it's important to start saving something – anything – as early as possible in your working years. That gives your savings the maximum amount of time to grow.
If you have only a little to save: |
Focus first on building up an emergency fund. "What good does it do you to have money in your 401(k) if your car conks out and you don't have the money to fix it?" asks Shuttleworth. |
|---|---|
Prioritize and be conscientious about budgeting. "Don't get into the trap of thinking that you deserve everything," cautions Michelle Clary, a Thrivent Financial representative in Kennewick, Washington. |
|
If you have a moderate amount to save: |
A Roth IRA, whose withdrawals at retirement can be tax-free, is a very good idea, even if you're only contributing $50 a month. |
If you have a lot to save: |
Contribute the maximum allowed to your employer-offered retirement plan. "Consider meeting with a financial representative about opening a Roth or traditional IRA as well," says Sheilah Lynch, a Thrivent Financial Advice Center representative in Fort Collins, Colorado. |
Look beyond your typical retirement savings options for additional investments. Clary encourages young high earners to set aside money for an "opportunity fund" to invest in a business or real estate venture in the future. |
20 Years From Retirement
If you have children, this time period could look very different, depending on whether you're paying for tuition or still saving for those college educations. Or, if you had children when you were in your 20s, you may be an empty-nester ready to spend your money on you. Either situation can make saving for retirement seem impossible or just a nuisance.
But this time period also provides some opportunity. As you get closer to retirement, it's easier to think about what you really might want to do, and you'll have a better sense of what it will take financially to get there. That's why most experts recommend people at this stage sit down with a financial representative to see whether they need to adjust their spending and saving habits.
If you have only a little to save: |
Put away what you can – even if it's only $10 a month – no matter how little it might seem. |
|---|---|
Be clear about what you can afford to pay for your children's college tuition, and plan accordingly with your kids. |
|
If you have a moderate amount to save: |
Avoid "midlife crisis" splurging. |
Stick to your budget, especially for big-ticket items such as vehicle purchases. |
|
Look into options to supplement your company's retirement plan, such as a Roth IRA, mutual funds or other investments. Talk to a tax advisor to make sure you're getting the best returns on any after-tax investments. |
|
Consider purchasing permanent life insurance. |
|
If you have |
Make the extra $5,500 annual "catch-up" contribution to your employer-sponsored retirement plan (such as a 401(k) or IRA) allowed by the federal tax code to people 50 years and older. |
Guard against "lifestyle creep," where you become accustomed to living the good life. Those higher expenses can quickly eat up your income in retirement. |
10 Years From Retirement
This decade is when many people really focus on saving for retirement. Some studies show that as much as 80% of retirement savings gets set aside during this time. Generally, experts say older workers should be increasing their savings rates and eliminating their debts. "Think of it as your final approach to landing," says Ensrud.
If you have only a little to save: |
You might need to work longer than you anticipated. Working until at least 66 gives you a chance to boost monthly Social Security benefits, build up your 401(k) balance and reduce the period you'll have to rely on retirement assets. |
|---|---|
You may have figured out how to live on less, but don't stop saving for retirement – or give up if you haven't started. Any little bit you can save helps. |
|
If you have a moderate amount to save: |
Pay off any outstanding debts. |
Consider making as much as a $5,500 "catch-up" contribution to both your and your spouse's employer-sponsored retirement accounts (e.g., 401(k)). |
|
Become more conservative with and protective of your savings and investments. |
|
Purchase long-term care insurance to help ensure a nursing home stay doesn't deplete your assets. |
|
If you have a lot to save: |
Consult with a legal advisor to make sure your estate plans are set up and are flexible enough to withstand tax law changes. |
Talk to your tax advisor about whether a Roth 401(k) – a frequently overlooked type of Roth savings account – makes sense for you. |
Real Numbers
Most Americans are not saving enough money for their retirement.
| $149,200 | The amount the average baby boomer aged 60 to 62 with a 401(k) plan has saved for retirement |
|---|---|
| 59% | Percentage of Americans who save for retirement |
| 56% | Percentage of those savers who have less than $25,000 in the bank |
| 42% | Percentage of Americans who admit they determine their retirement savings needs by guessing |
Source: The Center for Retirement Research at Boston College
Read More