Everyone knows the time to start saving for retirement is when you are young, but very few people actually do. According to a Country Financial Security Index survey, one in four Americans across all age groups admits they are not saving at all for retirement.
Those 18 to 29 are the biggest offenders of not saving. In fact, 32 percent in this age bracket are not saving for retirement. Perhaps, they’re buried in college loans or feel like retirement is too far away to worry about. Nearly 40 percent of those 40 and older say they regret decisions they’ve made with their retirement savings. What’s the biggest reason they point out? Nearly half say they regret not starting to save early enough.
According to The Motley Fool, the average balance in a typical 50-year-old’s retirement savings account is $43,797, despite the fact many Baby Boomers believe they need approximately $800,000 in order to retire.
No one knows exactly how much they’ll need for a comfortable retirement, but according to a report by benefits consultant Aon Hewitt, expect to need about 11 times your final working salary. This is how much the average worker needs beyond Social Security payments to retire at 65, according to the report. The estimate takes into account inflation and future medical costs and is based on the retiree maintaining the same standard of living.
Using an online retirement income planner calculator can help you get a sense of where you are on the track for retirement. Though a great place to start, calculators can’t predict the future and should be used to give you a sense of where you are and what you need, to get where you want to be.
If you are behind in retirement savings, don’t panic. It’s better to begin late than not at all. Keep in mind, time is important. Your first move: open an IRA at a mutual fund company and fund it. The maximum contribution for 2014 is $5,500. If you are 50 or older, you can make an additional $1,000 catch-up contribution, as can your spouse. If you can’t sock away the max, put away as much as you can. Once you have funded your IRA make sure to contribute to it monthly so it has time to grow. Continue to “pay yourself first.”
Second, you need to seek out professional financial advice. People who prepare for retirement – no matter at what age – with a financial advisor are much better situated to think about their longevity, healthcare needs, and their financial needs in retirement.
You’ll also want to take a good look at your lifestyle. A recent Merrill Edge survey found , although 61 percent of upscale Baby Boomers are worried about not having enough money to last through their retirement, very few are willing to sacrifice on expenses like dining out, entertainment, or vacations, in order to save more.
Even if these affluent Americans won $1 million, only 19 percent said they would put the funds toward retirement and a mere 32 percent said they would opt to save or invest the windfall.
Don’t make this mistake – especially when you are trying to play catch-up. Pack a lunch, take day trips, or rent a movie instead of going to the theatre. Ten years from now, you’ll be glad you did.
Health Savings Accounts are another great savings vehicle, if you have a high deductible health plan – which many older Americans do. For plans which qualify, you may contribute $3,250, yearly, to an HSA as an individual, while families can contribute $6,450. Once you reach age 55, you will be able to add another $1,000 annually. As long as you use the funds for qualified healthcare expenses, you will not pay tax on the withdrawals.
These contributions are also tax deductible and the money in the account can be rolled over from year to year if it isn’t used. You can even use the money for expenses, other than those which are health-related, once you reach age 65 – though you will have to pay income tax on those disbursements.
Also important, is building an emergency fund, never carrying a credit card balance, and having a plan to pay down all debt. To help build an emergency fund, consider a part-time job or starting a side job. If you are retired, head back to work part-time. If you carry credit card balances and pay the minimum payments each month, your potential retirement savings is 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 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.
Being behind in retirement savings isn’t the greatest, but it beats the alternative: facing retirement with no plan at all. It will take some due diligence, sacrifice, and willpower, but sticking to a plan will put you firmly on the path to retirement security.
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