Tackling typical retirement apprehensions
Many individuals experience a range of worries when faced with the importance of saving for retirement.
Fortunately, various resources are available to help alleviate these retirement concerns, such as 401(k)s, strategic planning, and seeking guidance from financial advisors to formulate sound strategies.
A primary anxiety for many is the fear of depleting their finances in retirement. This fear is heightened by a generally favorable trend: increasing life expectancies.
Another concern is inflation. The value of a person’s savings erodes with inflation as their overall financial resources remain stagnant while prices continue to rise.
Healthcare expenses present another significant worry as individuals prepare for retirement. The future of Social Security is also a pressing issue, as projections indicate that its trust funds may no longer be able to provide full benefits beginning in 2035.
Regardless of age, numerous individuals closely examine their retirement savings and face the disheartening realization that they are falling short of their objectives.
Ways to enhance retirement savings
Recently, Liz Miller, CFP and founder of Summit Place Financial, shared options for those who find themselves in this predicament.
Enhancing retirement savings and 401(k)s while catching up
Miller discussed methods that individuals can utilize to boost their savings despite lagging behind their goals.
“What’s the most effective way to catch up?” she was asked.
Miller recommended a straightforward mathematical framework for individuals to evaluate their progress.
“There are numerous ways to achieve this, right? First off, I would suggest utilizing online resources we refer to as calculators,” Miller explained. “Check online to see what they recommend. Generally, we suggest trying to save about 10 times your current income by the time you retire as a basic guideline.”
Miller elaborated on the strategy of leveraging a 401(k) to help individuals make up ground in their retirement savings.
“If you find yourself falling behind, the obvious solution is to save more,” she said. “But how do we go about that? If you have a 401(k) plan or a 403(b) at work, often we discover people are only saving enough to receive the match, thinking, ‘I’m contributing the maximum to get the full match.’”
“And we suggest that isn’t enough. Let’s exceed that match,” Miller continued. “The first step that consistently proves effective is to save through your workplace. Contributions are deducted directly from your paycheck, and these programs are typically beneficial. If possible, try increasing your contributions in the latter half of the year; those adjustments are often manageable.”
Grasping the potential for retirement savings
Miller recounted her everyday experiences with clients to help them determine an appropriate savings amount for retirement.
“I work with many young adults in their 20s who, when we discuss financial matters, often aren’t even aware of what they can afford to live on,” she said. “So we suggest moving funds into savings until they feel a slight strain, after which we can scale it back. The goal is to progressively increase the portion of their paycheck allocated to retirement savings.”
Miller also proposed an alternative approach for retirement savings.
“Another method—especially if you lack a workplace retirement plan—is to take the money directly from the top,” she said. “Establish a transfer from your checking account, where your salary deposits are made, into a Roth IRA.”
“Open a Roth IRA with a provider like Vanguard or Schwab. They make the process quite simple,” she added. “Link your checking account and set up an automatic transfer every time you receive your paycheck, ensuring those funds won’t be included in your spending budget. You take it right off the top.”
For Australians, the equivalent of a 401(k) is the superannuation fund, which operates on similar principles. It’s vital not just to rely on employer contributions but also to make additional voluntary payments. This can significantly enhance your retirement savings over time.
Additionally, Australians can benefit from the government’s co-contribution scheme, where personal after-tax contributions to superannuation are matched by the government up to a certain limit. This provides a fantastic opportunity to increase your retirement resources.
Another strategy is considering salary sacrificing, where you can arrange with your employer to allocate a portion of your pre-tax salary to your superannuation. This not only boosts your retirement savings but can also lower your taxable income.
For those without access to employer-sponsored options, establishing a self-managed super fund (SMSF) could be a practical solution. This offers greater control over investment choices and allows for customization to meet individual financial objectives.
Whether through employer-sponsored programs or personal savings strategies, the essential factor is to start early and maintain consistency. Regularly reviewing and adjusting your contributions can help ensure you remain on track to achieve your retirement goals.
