Published May 15, 2013
Retirement Savings: No Excuses
The list of excuses for why it's impossible to save for retirement is endless. Some people may be just getting started in their careers, making small starting salaries. Others may be stay-at-home parents with no earned income. Everyone is juggling a plethora of different financial goals, of which retirement is just one. And those who are midway through their careers and who have procrastinated signing up for their workplace retirement plans may be wondering if there's any point at all to begin saving now.
The fact is, the best time to save for retirement is right now, no matter what your personality traits are or where you are in the continuum of your career. Bankrate consults financial experts who offer some tips on how to make it happen. Their advice will help you get motivated, so one day you can make a seamless transition from the 9-to-5 workday world to a retirement where you can call the shots on how to spend your time and money.
Entry-level Emily: Too Little Earnings
Don't ever think you're too young to save for retirement. As a new worker, "entry-level Emily" has something far more valuable than her experienced superiors: time. A 25-year-old worker who saves $5,000 a year throughout her career will amass nearly $1.3 million by the time she's 65, assuming 8% annual growth. If she waits until age 35 to save, she'll accumulate less than half that amount -- $566,416 -- assuming the same return.
Bottom line: If you're just starting your career, don't walk -- run -- to open a retirement account.
Grab free money. Have access to a 401(k)? Save enough to qualify for your employer's matching funds. That's typically 50 cents for every dollar you save, up to 6% of earnings.
Automate your savings. If you don't have a 401(k) plan at work, set up direct deposits into an individual retirement account at a brokerage firm before you spend your whole paycheck.
Go for growth. "An entry-level worker should put 100% of their retirement fund in equities," says CFP professional Drew Tignanelli, president of Financial Consulate in Hunt Valley, Md. The reason: Stocks grow more over time, and you're young enough to ride out dips in the market.
Rough it. Saving early is potentially worth millions, so make sacrifices now. "Keep eating ramen noodles, and save like crazy until you're 30," says Rick Kahler, president of Kahler Financial Group in Rapid City, S.D. "Then you can look at upping your lifestyle."
Stay-at-Home Sally: No Earnings
Even if "stay-at-home Sally" has no earnings, she can still save for retirement. Meetings and commutes may be distant memories for her, but retirement planning shouldn't be.
"Somebody at home is more preoccupied with the here and now -- a child, an ailing parent and so forth," says Eleanor Blayney, consumer advocate for the CFP Board. "At-home spouses have to make a concerted attempt to keep retirement front and center."
Open a spousal IRA. Your working spouse can make yearly contributions on your behalf -- up to $5,500 in 2013, or $6,500 if you're older than 50 -- as long as he or she earns enough to cover the contribution. That adds up: Save $5,500 for, say, 10 years. After another 20 years, you'll have $294,059 if your money grows at 7%.
Keep saving. Spouses can gift unlimited amounts to each other. Save these gifts in an account that's specifically dedicated to your retirement. "It's harder to spend ... if it's labeled," says Blayney.
Guard against mishaps. A workplace life insurance plan may not be enough in the event you're suddenly widowed. Get extra coverage. Find a quote for term policies at Bankrate's insurance center.
Stay employable. You're home today, but keep ties to your profession. Network. Update skills. "Don't go completely fallow," says Blayney. "Prepare."
Juggling (finances) Jerry: Several Commitments
Pay yourself first.
"Juggling Jerry" has heard that before, but what about the credit cards, the children's college education and those vacation plans?
When it comes to juggling finances, we often put our futures dead last. "I can tell you story after story of people who blew their chance to save for retirement," says Tignanelli.
It's time to reprioritize.
Set a goal. Just 46% of workers have attempted to calculate how much they will need for retirement, according to the latest Retirement Confidence Survey by the Employee Benefit Research Institute, or EBRI. But without a goal, it's impossible to know how much to save -- and what's left over for other things. Set a target.
Kill the bills. Debts cost more than what you're likely to earn with savings or investments. Experts generally agree it's important to be debt-free before investing. The exception: If you have a 401(k) or 403(b), save enough to qualify for matching funds as you pay off bills. "You don't want to leave free money," says Philip Lee, a wealth manager at Modera Wealth Management in Boston.
Maximize savings. If you have catching up to do, fund up to the maximum allowable limits. In 2013, that's up to $17,500 in a 401(k), plus another $5,500 if you're 50 or older.
Now juggle. Once you're on track for retirement, you can start saving for your kids' college and that fun vacation.
Procrastinating Pete: Late to the Game
"Procrastinating Pete" is not alone. Nearly 3 out of 10 retirees say they didn't start planning for retirement until they were within 10 to 19 years of retiring, according to EBRI's 2013 Retirement Confidence Survey.
No matter how far behind you are, don't give up. Instead, buckle down -- pronto.
Increase savings. This year, you can save up to $17,500 in a 401(k), plus $5,500 more if you're at least 50, for a total of $23,000. In addition, IRA contribution limits are $5,500 ($6,500 for those 50-plus). If you're 50-plus and you maximize contributions for both the IRA and workplace plan, you can amass more than $1 million in 20 years, assuming a 6% annualized return.
Save smarter. A Roth IRA is often a great option for late starters because you can leave assets in them as long as you like. Plus, when you do withdraw funds after you're 59 ½, the money is tax-free.
Consider converting. If you have an IRA, you can convert it into a Roth IRA, but you'll pay taxes. Is it worth it? It may be if you have at least 20 years before retirement.
Delay Social Security. You can start collecting Social Security as early as 62, but it pays to wait. A monthly Social Security benefit worth $1,000 when you're at full retirement age will be reduced to $750 if you collect at 62. Wait until you're 70, however, and you'll get $1,320.
Super-Organized Stan: No Clear Plan
"Super-organized Stan" worked hard and managed to save for retirement. What else is there for him to do?
Plenty. "People save without a plan," says Bill Baldwin, president of Pillar Financial Advisors in Waltham, Mass. "They do helter-skelter planning."
Calculate. Sure, you've amassed "a lot." But is it enough? It's great if you're among those who have calculated your income needs in retirement. If you haven't calculated your needs yet, try using a retirement calculator, for starters.
Get expert feedback. When you have $100,000 to $200,000, it's probably time for some professional guidance. Opt for a fee-only planner who doesn't earn a commission by selling financial products. A good resource is the National Association of Personal Financial Advisors at NAPFA.org.
Take stock. Excessive fees, lackluster returns or unbalanced portfolios can undermine your efforts. Do a financial review annually to make sure you're saving smart. Tactical asset allocation funds, which are actively managed, or periodically rebalanced strategic asset allocation funds can get you the right mix without the hassle of micromanaging your investments.
Remember heirs and insurance. Your annual retirement review should include a look at all of your paperwork. Are beneficiary forms current? If not, you may end up leaving that annuity to your ex-husband. And consider getting long-term care insurance.