Saving for Retirement

The ideas and concepts around saving for your retirement might have changed over the last few decades, however, one thing still rings true, good financial habits can help eliminate the biggest fear for retirees – outliving their money.

Saving for Retirement

Saving for Retirement

What will you need?

No one knows exactly how much is needed for a comfortable retirement. Nevertheless, according to a report by benefits consultant Aon Hewitt, it is expected the average person needs about 11 times his or her final working salary. According to the report, that’s how much the average worker needs beyond Social Security payments to retire at 65. This estimate takes into account inflation, future medical costs and is based on the retiree maintaining the same standard of living.

Working longer does make a difference. At age 67, a person needs 9.4 times their final pay. Conversely, retiring early requires more savings — 13.5 times final pay at age 62. This report, which observed 2.2 million employees at 78 large U.S. companies, found most employees with an average 30-year career, who are saving in an employer-sponsored plan, will still fall short of accumulating 11 times final pay. It was concluded the typical employee is on track to amass 8.8 times final pay.

According to the U.S. Department of Labor, the average American spends 20 years in retirement. Fewer than half of Americans have even tried to calculate how much they need to save for retirement. In 2012, 30 percent of private industry workers with access to a defined contribution plan (such as a 401(k) plan) did not even participate in the plan.

Where’s the problem?

The best system for building a comfortable nest egg is to “pay yourself first,” no matter what age or stage of life. Automated deposits into a savings account, a 401(k), a ROTH IRA or a traditional individual retirement account (IRA), for example, are a great way to take the sting out of saving. Contributions are made on a pre-tax or after-tax basis, depending on the type of account, and will disappear from your paycheck before you get a chance to spend it. This type of automatic savings plan helps you learn to live with less money and within your means.

As a young adult, you may not be able contribute the maximum amount to your 401(k), which is $17,500 for 2014, but all employees, regardless of age or income, should at least contribute enough to get the full benefit of any available employer match. Those who learn to pay themselves first will have the opportunity to supersize their future retirement paychecks, making it far more likely to enjoy a comfortable retirement.

Not everyone may be in a financial position to put money away on a regular basis. If you’re one of the millions of Americans who are over 40 and don’t yet have a substantial retirement nest egg, or who had to use their retirement savings to get by during this last recession, don’t despair. It’s not too late, but time is of the essence.

How do you fix it?

Your first move: Open an IRA and fund it. If you can fund it before April 15, 2014, you can stipulate that the money count toward the 2013 tax year. The maximum contribution for 2013 is $5,500. (People 50 and older can make an additional $1,000 catch-up contribution). If you can’t sock away the max, do as much as you can. Once you have funded your IRA make sure to contribute to it monthly, so your money starts working for you as soon as possible.

Here are some other ways to help boost your retirement savings:

  • Look at Your Portfolio: Sit down with your financial advisor and reassess your portfolio allocation, based on current market conditions and risks.
  • Cut Expenses: Downsize your living situation. Eat at home instead of eating out. Consolidate your subscriptions [cable, phone, etc.] and reduce your entertainment budget. All of these cuts will add up to significant savings.
  • Supplement Your Income: Consider a part-time job or starting a side job. Earmark the earnings to your retirement account.
  • Retired? Work Part-Time: A lot of retirees head back to work part-time within a year or two, out of boredom. Consider consulting, freelancing or going back to the workforce.
  • Get Out of Debt. If you carry credit card balances and pay the minimum payments each month, your potential retirement savings are going directly to your credit card company in the form of interest. Paying only the minimum payment on credit cards is one of the worst financial mistakes you can make. Start applying as much money as possible to your credit card balances and once they’re paid off, either resolve to pay the balance in full each month or live on cash.

For more information on Summit Brokerage Services, an independent broker-dealer, visit or contact us at (800) 354-5528.

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