Many of us dream of retiring at some point, but are you setting aside enough to make that a reality?
According to the Employee Benefit Research Institute (EBRI) latest’s retirement confidence survey, you might not be on track.
The latest survey indicates one third of those surveyed found that retirement expenses are higher than they thought they would be.
That’s a fairly alarming number when you stop to think about it – especially when you consider that the EBRI reports that these results are based on data before the inflation run up of the past year.
Are You on Your Own for Retirement?
The EBRI survey found that most of the workers don’t know where to go or who to trust for financial and retirement planning information. That’s why most resort to researching the specifics on their own.
When planning for retirement, it’s nice to have a little help. At least companies are making it a tiny bit easier for workers to save these days. More than 80% of survey participants are satisfied with their workplace retirement savings plans and the tools these plans offer. These include being able to automatically increase their contributions and other informational resources that the portal provides. Automation is especially useful. You can set money aside without thinking about the task or even seeing it. It’s one way to pay yourself first.
Even better is if your employer offers a match. That’s free money you can get for retirement. And, of course, that sum grows over time when invested too, snowballing to a pretty healthy nest egg come retirement time.
How to Save on Your Own
If the EBRI survey is any indication, it’s clear that many people can only rely on themselves to figure out how to best save for retirement. This is where things get sticky if you hope to build up your savings for the future.
If you are on your own for retirement, you need to take a more active role to build wealth for the future. Don’t get stuck. Come up with your own retirement plan.
One of the easiest ways to get started is to open an Individual Retirement Account (IRA).
Nearly anyone with earned income can open an IRA and make contributions. There are a number of discount brokers that can help you open an IRA and start investing. You can usually even set it up so that you automatically transfer money from your bank account to the investment account each month.
Set it up once and then start making regular contributions.
If you are self-employed, there are options like the SEP and SIMPLE IRAs, plus the Solo 401(k). These accounts allow you to contribute more to your retirement account than you could with a “regular” IRA.
Another option, if you qualify with a high-deductible health care plan, is to open a Health Savings Account. You can plan to let the money grow instead of using the money as you go along. Doing so will allow you to save up money for health care costs during retirement tax-free.
David’s Note: HSAs are fantastic, but don’t blindly jump in with both feet until you’ve done your research. Under current federal tax law, money that goes into the HSA is tax deductible up to a yearly limit. The earnings inside the account will be tax-free and withdrawals will also be tax-free if they are used for qualified medical expenses. That’s why you hear about HSA funds being triple tax-free sometimes. Sounds great right? However, check your state tax laws too. California, for one, does not give a tax break on HSA contributions, nor is interest earned within the account tax-free. It seems like a small fine print but this makes a big difference, especially with the high tax rates that Californians get to “enjoy”.
You can even use a taxable investment account if you want to retire before you’re eligible to take penalty-free withdrawals from your accounts. Just make doubly sure you are taking advantage of the various other investment vehicles that won’t penalize you for withdrawing funds before you reach retirement age first.
Bottom Line
If you don’t start setting money aside for retirement, you will be unlikely to reach your goals for the future. The best time to start saving for retirement is yesterday, but the second best time to start is now. Make a plan and get started ASAP to reduce the chances of a not-so-golden retirement.
Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.
They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.
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I keep calling it Personal Capital too, but in fact that company no longer exists. It is now Empower, but the web tool hasn’t changed.
I am in my 50s now and until now I still don’t have savings as I don’t know how to manage my money. Any tips? Thank you.
It’s tedious to think about financing something like your retirement if you feel like you’re still living the prime of your life but it doesn’t take much to get s tarted putting aside a little bit for a rainy day. Sooner or later you can ramp up the contributions to really have a sizable nest egg for yourself!
Good insights. Good planning is always the best.