by Josh Stelzer
It’s an understatement to say that times have changed since the financial crisis in 2008-2009. People have in no way forgotten the crisis and the uncertainty surrounding current political and fiscal policies have undoubtedly had an influence on our behaviors over the past several months. It’s perfectly natural to adjust to the environment surrounding you; however, there is one area I’ve seen change that will have a negative impact on many peoples’ lives in the future. People have significantly reduced the amount they are saving for their retirement.
I find this intriguing because of the fact that everyone will be forced into retirement at some point in their lives. Don’t get me wrong, I understand shoveling money into your qualified retirement account may not be as easy as it used to be. That being said, we have to realize that we are the only ones looking out for ourselves and our retirement. With pensions becoming virtually non-existent and the uncertainty associated with Social Security, most Americans will be heavily reliant on the income they are able to produce from their lifetime savings. This means one of two things, you either have to save more or find a way to live at a lower standard of living during retirement.
A 3.5% withdrawal rate on $1,000,000 will only produce $35,000 a year. This income added to the average monthly Social Security payment (currently $1,172/month) would produce a gross income of $49,064. While this may seem like a livable amount of income, keep in mind that this is based on a retirement savings of $1,000,000.
According to the 2011 Retirement Confidence Survey conducted by the EBRI, over 44 percent of Americans between the ages of 45-54 have less than $10,000 saved for retirement. If that isn’t staggering, only 15 percent have more than $250,000 saved for their quickly approaching retirements. The statistics speak for themselves.
So the question remains, what can you do to fix this and give yourself a better shot at retirement? Saving more for your retirement should be your primary focus. Here are a few tips to help you reach your goal:
1. Take full advantage if your employer offers a match to your 401(k) – This should be an obvious one. If your employer offers a match, you have to take advantage. It’s surprising how many people “opt out” of these match programs, which provide an immediate return on your investment. Contribute up to the match percentage and then look elsewhere for other tax advantaged plans such as a ROTH or Traditional IRA.
2. If you’re over 50, make catch-up contributions to your IRA – f you are over the age of 50, the IRS allows you to make an additional $1,000 contribution to your IRA accounts for a total of $6,000 annually. After the employer match in your 401(k), this is where the next $6,000 of investable income should be directed. Depending on your income level, these contributions may also qualify for an “above-the-line” deduction for your AGI.
3. Reconsider how to fund your children’s college education – While this is definitely an emotional topic and a decision for your household, there are alternative ways to fund your children’s college. Many student loans offer tax advantages with deductions for interest paid (depending on income level). I have yet to find a bank offering loans for retirement income.
4. Develop a retirement strategy, and write it down – Start simple and create an “ole fashion” budget. Write down your total monthly after-tax income and every single expense. Once you have this cash flow nailed down, you can decide which type of retirement account best suits your needs. This should be an ongoing process that you review each month. Our lives change as the months go by, and so should our budget sheets. The Snider Advisors My Financial Plan app can offer a great start to this process.
5. Get educated about retirement investing – Meeting with a financial advisor to get started is always your best bet. Advisors can take thousands of confusing investment options and reduce them down to those that only apply to your specific situation. Taking the first step of requesting a financial consultation is often all it takes for people to gain clarity for their retirement picture. Our advisors are always happy to help you get your retirement affairs in order. You can contact us by submitting a free consultation request by clicking here.
With 10,000 baby boomers retiring every single day, the time to start planning is now. You simply can’t afford to kick the can down the street and hope it all works out. Give yourself a shot at a successful retirement by revisiting your current financial situation. If you need assistance, Snider Advisors is always here and happy to help.