5 steps to get on the right path for retirement
Shaky savings habits evident before personal wealth plunged are even more obvious coming out of the recession: 54% of workers have never tried to calculate how much money they will need for retirement, according to a survey released this month by the non-profit Employee Benefit Research Institute. Even among workers 55 and older, 47% still haven't done the math.
Further, some 27% of workers surveyed say they have less than $1,000 in savings, and more than half of workers surveyed say that the total value of their household's savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000.
"The fact that the markets are still well below 10-year-ago levels underlines the necessity of thinking long term and saving out of every dollar of income," says Dallas Salisbury, EBRI president and CEO.
"An emergency fund that will support you for a year has always been good advice, but the current crisis screams out why.
"And that emergency fund will help in retirement and save you from withdrawing money from retirement accounts. Choose to save for your future and sleep better as a result."
If you're 25
1. Make a budget.
Download step-by-step instructions at SmartAboutMoney.org or use the home budget calculator at MindYourFinances.com.
Don't have sufficient cash to cover expenses and savings? You have two options: Slice spending or increase income by working more hours or getting a second job. It's easier to work extra hours before you have family obligations. Saving 15% for retirement annually is a good goal to shoot for. People who set a goal are more likely to reach that goal, says Ken McDonnell, program director for the American Savings Education Council.
2. Consider moving in with Mom and Dad.
Doing so allows you to stockpile cash for retirement and the major life events that are on your horizon, such as purchasing a home, planning a wedding and having kids.
Thirteen percent of families with grown children said an adult son or daughter moved home last year, according to a Pew Research Center survey.
3. Pay down debts.
If you're paying interest on college loans and on your credit card balance, paying those debts off first is a no-brainer. To see how long it'll take, try the credit card pay-off calculator at Feedthepig.org.
4. Make the match.
If your employer offers to match contributions to your pretax retirement account, contribute enough to get that match. If you don't, you're passing up free money, something no one would do under any other circumstance, says Jordan Amin, financial literacy chair for the American Institute of Certified Public Accountants.
To see how increasing your current contributions now will buoy your retirement later, try the 401(k) Savings Calculator at AARP.org.
5. Invest in the stock market.
"At 25, you have the ability to handle ups and downs and fluctuations in the market, because you don't really need that money for 40 years," Amin says.
If you're 45
1. Plan ahead.
Begin looking at long-term care insurance and other insurance coverage befitting your needs. Long-term care policies get pricier as you age, and you may be better off locking in a lower price now. Also, make certain you have sufficient life insurance or savings to provide for your dependents in case you don't make it to retirement.
Keep in mind that in five more years you can make catch-up contributions to your 401(k), 457 or 403(b) plan. Those 50 and older can contribute an additional $5,500 each year, McDonnell says, for a total maximum pretax annual contribution of $22,000.
2. Rebalance your assets.
If you're still investing like a 25-year-old, shift some of those investments to less-volatile fixed-income funds, Amin says. If you haven't been a good saver, he says, you may have to sacrifice more now and invest slightly less conservatively. In either case, you should have a higher percentage of your assets in fixed-income funds than you had when you were 25, he says.
3. Carefully consider spending decisions.
Is it really a good idea to take a second 30-year mortgage to cover your child's college tuition or to renovate your kitchen? Will you be able to make mortgage payments at 75?
4. Save whatever you can.
Amin says it's not too late to get serious about saving at 45, but the tremendous competition for your money — family, health costs, mortgage, educational planning and elder planning — can make it very tough. Get it done, anyway.
One note: If your employer reduces or drops the match to your 401(k), that's not a signal to reduce contributions. Keep them level or increase them, McDonnell advises.
5. Take ownership of your finances.
Whether you are a do-it-yourselfer or you hire a financial professional, watch your nest egg.
"Understand what you're signing and what you're agreeing to," Amin says. "Be certain you understand what the fees are. Monitor your investments. Read your monthly statements. Ask questions if you don't understand something. Don't sign anything that you don't understand, and don't invest in anything that you don't understand. It's OK to ask questions — repeatedly.
"It's your money, and you should understand and be comfortable with what you're doing with it."
If you're 65
1. Figure out your funding source.
Know exactly how much money you'll need to live on and where you are going to get it — retirement accounts, IRAs, 401(k)s, pensions, individual savings, Social Security or part-time work, for example.
If your financial picture is bleak, consider delaying your retirement. If you work five more years and save aggressively during that time, you can change your retirement picture. "Don't think of work as an evil thing," McDonnell says. "Staying active means a healthier life. Work can be a component of what you do."
2. Roll over your 401(k) properly.
Otherwise, you could lose 20% of your investment. If your intention is to move your money from one account to another, make sure you don't wind up with a check instead of a monthly statement.
"You want to make sure that you're rolling it over directly to a qualified investment account like an IRA so the money's not touching your hands," Amin says. "When it comes to you, it becomes taxable, so there's a mandatory federal withholding of 20%."
3. Decide on withdrawals.
The goal is to make your capital last as long as possible and pay no unnecessary taxes. For help, go online to 360financialliteracy.org, SSA.gov and AARP.org.
4. Exit the job carefully.
Make sure you make the right moves when you sign your retirement papers. Read everything and ask questions to ensure that you understand what insurance coverage, investment rollovers and spousal benefits are in store for you, your dependents and your beneficiaries.
Be sure you understand options for tapping your pension or retirement plan. Decide if you want to let your 401(k) stay put or roll it over to an outside plan that may offer more investment options.
5. Seek help if nearly broke.
Explore local and state programs that assist older citizens. They range from free lunch programs to time banks, where, for every hour you spend doing something for someone in your community, you can earn a "time dollar" to hire someone to do something for you.
I would add to the 25 age group: 1) augment your degrees and career plan if you find yourself undereducated or in a deadend or insufficiently lucrative profession. 2) plug your current monthly retirement savings plan into one or two online retirement calculators to get a reality check on how much you should be starting to save for this.
I would add to the 45 age group: 1) plug your current savings for retirement into one or two online retirement savings calculators to see if you need to increase your monthly retirement savings. 2) Make sure you have a plan to pay off your house by the time you plan to retire.
I would add to the 65 age group: 1) have a plan to stay mentally and physically fit. Your health is one of the biggest drivers of happiness and financial soundness in retirement.
Quoting annie2244:
I would add to the 25 age group: 1) augment your degrees and career plan if you find yourself undereducated or in a deadend or insufficiently lucrative profession. 2) plug your current monthly retirement savings plan into one or two online retirement calculators to get a reality check on how much you should be starting to save for this.
I would add to the 45 age group: 1) plug your current savings for retirement into one or two online retirement savings calculators to see if you need to increase your monthly retirement savings. 2) Make sure you have a plan to pay off your house by the time you plan to retire.
I would add to the 65 age group: 1) have a plan to stay mentally and physically fit. Your health is one of the biggest drivers of happiness and financial soundness in retirement.
What savings for retirement? Aso I don't own a home, I'm a renter.
That's great if you started this plan back in your 20s, but there are things we do in our youth that affect us later on.
Quoting CoeyG:
Quoting annie2244:
I would add to the 25 age group: 1) augment your degrees and career plan if you find yourself undereducated or in a deadend or insufficiently lucrative profession. 2) plug your current monthly retirement savings plan into one or two online retirement calculators to get a reality check on how much you should be starting to save for this.
I would add to the 45 age group: 1) plug your current savings for retirement into one or two online retirement savings calculators to see if you need to increase your monthly retirement savings. 2) Make sure you have a plan to pay off your house by the time you plan to retire.
I would add to the 65 age group: 1) have a plan to stay mentally and physically fit. Your health is one of the biggest drivers of happiness and financial soundness in retirement.
What savings for retirement? Aso I don't own a home, I'm a renter.
That's great if you started this plan back in your 20s, but there are things we do in our youth that affect us later on.
We didn't have shit when we got married but dh started a work 401 K and we were able to scrimp and save some in an IRA too. We were only 22 and 23 when we married. I do not think many think about retirement at that age. My dd 18 is putting money in an IRA this year. She knows about them from business class, not just from us.
Quoting CoeyG:
Quoting annie2244:
I would add to the 25 age group: 1) augment your degrees and career plan if you find yourself undereducated or in a deadend or insufficiently lucrative profession. 2) plug your current monthly retirement savings plan into one or two online retirement calculators to get a reality check on how much you should be starting to save for this.
I would add to the 45 age group: 1) plug your current savings for retirement into one or two online retirement savings calculators to see if you need to increase your monthly retirement savings. 2) Make sure you have a plan to pay off your house by the time you plan to retire.
I would add to the 65 age group: 1) have a plan to stay mentally and physically fit. Your health is one of the biggest drivers of happiness and financial soundness in retirement.
What savings for retirement? Aso I don't own a home, I'm a renter.
That's great if you started this plan back in your 20s, but there are things we do in our youth that affect us later on.
But that's the point of this post, isn't it? To debate what are the most prudent actions to take in 3 age groupings? Not how it sucks not to have personally taken some prudent decisions earlier in one's life, but, if one could do it over, or if one was advising someone else who is quite young, what are important actions and attitudes for each age group that will help assure adequate retirement funding.
Plus, there's no point in my life that I would take a fatalistic posture about my finances, or my future in general. If I'm 45 and haven't done squat towards retirement planning, I'd start today. At 45, I would have 22+ years of work ahead of me, plenty of time to get things squared away.
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- atlmom2
on Mar. 21, 2010 at 7:46 PM