Saving for Retirement—How’s That Working Out for You?Submitted by Retirement Choices of California on October 21st, 2019
For some the answer is, very well, thank you. For others, there may be plenty of room for improvement. There is no better time than National Retirement Security Week (October 21 - 27) to start saving in earnest, to keep on growing your nest egg or to make some positive adjustments to your existing retirement savings game plan.
Here are four solid tips to make retirement saving work out for you.
Start saving specifically for retirement. This tip is especially directed at young workers. Any amount you save at a young age can pay huge dividends down the road through the power of compound interest. A 22-year-old who saves $200 a month—just about $50 a week—at a 6 percent annual rate of return will have more than $76,000 saved towards retirement at age 40. That puts you well ahead of the $54,054 that is the average level of savings for those aged 35 - 44, according to Vanguard’s How America Saves
Any amount you save at a young age can pay huge dividends down the road through the power of compound interest. How to do it: Enroll in a retirement savings plan (401k, 403b, 457, IRA). Both IRAs and employer-sponsored 401(k)s or similar plans provide tax advantages designed to encourage retirement savings (and discourage early withdrawals), so that’s where you should begin.
Give yourself a savings "pay raise" each year. Your savings target should be around 12 to 15 percent per year, inclusive of any employer match. You may need to work up to that amount over the course of a few years, escalating the amount you save by a percentage or two each year. But the earlier you lock in that double-digit savings rate the rosier your retirement balance sheet is likely to be. How to do it: Some organization’s offer automatic escalation, where your retirement savings increases each year unless you opt out (don’t). Others remind you of the option to escalate, often during annual enrollment for other benefits (act on that company nudge). If either of these is not an option, set up a calendar reminder each year to increase your savings rate. Some savers like to time their savings “raise” to kick in at the beginning of a new year, perhaps to coincide with a rise in salary, or during benefits open enrollment. You can also enlist a spouse or friend to keep each other on the retirement savings track. The key is to follow through. Don’t over think the increase—after all, you’re just paying yourself more each year.
Don’t stop saving for retirement just because you reached an IRS limit. IRS retirement contribution limits are not guidelines for how much you should save. While an admirable first step, saving the IRS maximum may not ensure you meet your retirement goals. This is especially true if you are saving through an IRA, which has a maximum savings limit is $5,500 per year, or $6,500 if you are 50 or older. Unless you supplement this amount with other savings, your nest egg may fall short of what you need to enjoy a secure retirement. How to do it: Set up a separate account for retirement savings and earmark it for that purpose. Set up automatic payments to that account, just as you do with tax-advantaged accounts.