According to TIAA-CREF’s Ready to Retire Survey “…more than half of people approaching retirement (52 percent) say they wish they had started saving for the future sooner.” Some key findings from the survey include:
- “Many respondents say they wish they had made smarter financial decisions earlier in their career, including saving more of their paycheck (47 percent) and investing their savings more aggressively (34 percent).
- Forty-five percent of participants age 55-64 say financial readiness is the most important factor in determining when they will retire, but only 35 percent say they saved in an IRA or met with a financial advisor.
- By not making the most of these options, many Americans now feel uncertain about their financial futures, with 68 percent of those approaching retirement saying they are not prepared for what’s to come
- These retirement savings challenges are causing Americans to reconsider their vision of retirement. Forty-two percent of survey respondents age 55-64 say they plan on working in a part-time job, and 39 percent say they’ll be more conservative about how much they spend on entertainment and other luxuries.”
If you are just starting out in the workplace, enroll in your employer’s 401(k), 403(b), or whatever type of retirement plan they offer. Contribute as much as you can. If there is a match try to contribute at least enough to earn the full matching contribution from your employer, this is free money. There is no greater ally for retirement savers than time and the magic of compounding. As tough as it may be to save early in your career put away as much as you can reasonably afford as early as you can afford it.
Increase your contributions
The maximum 401(k) contribution limits for 2015 are $18,000 and $24,000 for those 50 or over at any point in the year. No matter what you are currently contributing to your plan try to increase it a bit each year. If you are currently deferring 3% of your salary bump that to 4% or even 5% next year. Increase a bit more the following year. You won’t miss the money and every bit can help fund a comfortable retirement.
Start a self-employed retirement plan
If during the course of your career you become self-employed it is still important that you save for retirement. Starting a plan such as a SEP or Solo 401(k) can be a great way for you to put away money for retirement. You work hard at your own business and you deserve a comfortable retirement.
Contribute to an IRA
Anyone can contribute to an IRA. Traditional IRAs are subject to income limits as far as the ability to make pre-tax contributions, but anyone can contribute on an after-tax basis with no income limits. All investment gains grow tax-deferred you do need to keep track of any post-tax contributions however. Roth IRAs can also be a good alternative; again there are income ceilings that can limit your ability to contribute.
Don’t ignore old retirement accounts
Today it isn’t uncommon for people to have worked for five or more employers during their career. It is important that you make an affirmative decision as to what you with your old 401(k) or other retirement account when you leave your employer. Leave it where it is, roll it to an IRA, or to your new employer’s plan (if allowed) but don’t ignore this money. Even smaller balances can add up especially if you have several such accounts scattered about.
By the same token make sure that you stay on top of any pensions that you might be eligible for from old employers. Make sure these companies can find you and be sure to carefully evaluate any pension buyout offers you might receive from old employers. These can often be a good deal for you.
Beware of toxic rollovers
Recently I have read a number of accounts about brokers and registered reps looking for employees of large organizations and convincing them to roll their retirement accounts into questionable investments with their brokerage firms. Certainly rolling your 401(k) into an IRA via a trusted financial advisor is a valid strategy but like anything else you need to vet the person suggesting the rollover and the investment strategy they are suggesting.
Avoid high cost financial products
Many financial advisors who make all or part of their income from the sale of financial products will often suggest high cost financial products to implement their financial recommendations. These might include annuities, certain mutual funds, non-traded REITs, and others. Be leery and ask about the costs and fees associated with these products. There is nothing wrong with annuities, but many of them that are pushed by registered reps carry excessive fees and have onerous surrender charges.
In the case of mutual funds, index funds are not the end all be all. But you should certainly ask the advisor why the large cap actively managed fund with an expense ratio of 1.25% or more that they are suggesting is a better idea than an index fund with an expense ratio of 0.15% or less.
At the end of the day starting early, investing wisely and consistently, and being careful with your retirement savings are excellent ways to avoid the regrets expressed by many of those surveyed by TIAA-CREF.
Please feel free to contact me with your questions.