Often, we find ourselves thinking we have plenty of time before we hit retirement age. It can seem so far off that the impact of actually retiring doesn’t register…it doesn’t take priority. Let’s face it…we’re so busy with our current lives that future life events fall to the bottom of our list.
Let’s change that. Now.
Aside from education and housing, retirement planning is a big life investment and should be moved to the top of your priority list. Think of it this way, retirement could last for decades (30 to 40 years!). If you’re relying just on social security and a pension to get you through those years…your monthly income will drop significantly, drastically changing the way you are able to live your life. To keep the same level of spending…to maintain the same way of life you are currently experiencing, you’ll need to begin saving now.
Bankrate.com survey found that 14% of Americans ages 65 and older are without a nest egg.
That’s a frightening thought.
So, let’s get started.
- Question: I’m in my mid 20’s. My parents regularly advise me to set aside money for retirement, but this is my first “real” job, so my take-home pay is not that much. I want to try and save something, but not sure where to start.
Answer: You’re right, trying to save for retirement can seem daunting, especially with limited income. Living paycheck to paycheck leaves little room for saving. However, most organizations offer a 401(k) with employer matching. Typically, this looks like the following: your employer will match 50% of your contributions, up to 6%. Saving 1% each pay period, is a good start…but, what if you were to contribute 6%? You now can add the employer matching…increasing your overall benefit. Another way to look at this…if you contribute 6% it’s like getting a 3% raise from your employer (It is a 50% match, so if you put in 6%, the match would be 3%) to add to your savings account. Free money…just to reward you for saving!
If your employer doesn’t offer a 401(k), consider the myRA as another option.
- Question: If I’m in my 40’s, how should I get started with retirement planning? Is it too late?
Answer: It’s never too late, it just means that you have to be a bit more aggressive with your saving. Take this example from the Motely Fool: “if you start on your 40th birthday and invest $1,000 per month consistently until your 70th birthday, you could wind up with nearly $1.5 million in your account if you earn 8% per year.” Take a look at your contribution maximums for both your 401(k) and IRA plans and try to begin saving as much as possible. You’ll need to take a closer look at your budget and determine an appropriate figure, but try to make adjustments where possible so you can begin making progress now.
- Question: I just got laid off. What should I do with my 401(k)?
Answer: Great question. Your employer will provide you with detailed instructions that will help you decide on next steps. These options can range from keeping your money in the current account or cashing it out to help bridge your time out of work, but that option would result in tax implications. Your best bet is to roll the funds into a qualified retirement account at your next employer or into your own personal IRA, as to avoid taxes and possible penalties.
- Question: I’m a bit confused on all of the 401(k) and savings options available to me. From roll-overs to IRAs, where can I find more information that provides clarity? I’m 5 years from retirement age and want to maximize my contributions.
Answer: You can definitely play catch-up now. It’s not too late. Catch-up contributions to your IRA and 401(k) can begin during the calendar year in which you turn age 50. Kiplinger.com shares the following: “you can add $5,500 to your 401(k) above the $17,500 annual contribution limit, for a total of $23,000 for this year. You can also add an extra $1,000 to your Roth IRA beyond the $5,500 annual contribution limit, for a total of $6,500 for this year.” To determine if you’ve saved enough or need to save more for retirement, check out this Kiplinger quiz.
Rachelle first published this article on the RPA website.
RPA’s service experience and knowledge extends across the entire spectrum of today’s retirement plans. Whether you are starting a new plan or have a large established retirement plan program, we have the tools and the team to support your needs. Start saving now. Let us help you form a strategy now…whether for yourself or for your organization.