By Corrie C This post may contain affiliate links. See disclosure policy linked in my footer.
When you retire are you relying on Social Security and pensions to help you through retirement? I hope not!
There's plenty of debate over whether Social Security will still be around when us 20- 30- and 40-somethings retire. However, many companies no longer offer pensions to their employees anymore, so for many of us, that's no longer an option.
So, how are we going to make it through our retirement years?
Are you contributing to your (and/or your spouse's) 401(k)? If not, does your company match your contributions? If they do, and you're either not participating or not contributing up to the maximum company match, you are just throwing money away that your employer is willing to give you! Many companies will either offer a 1-to-1 match (for example, if you contribute 3% of your salary, they will also contribute 3%) or they will offer a partial match (if you contribute 4%, they will contribute 2%).
How can you increase your retirement savings?
Try increasing your 401(k) percentage by just 1% and see what the effect on your paycheck is. Since, the money is pre-tax, it will not feel like a full 1%, since you are not paying federal, state, or local taxes on it (although you are still paying social security and medicare taxes on it).
When you get a raise, try increasing your percentage savings. Chances are you won't even miss it, since it's money you weren't getting before anyway. For example, you or your spouse gets a 3% cost of living increase. Do you really need the full 3% for your household needs? Try taking 1 or 2% of the raise and put it away in your 401(k).
If you find that you're getting a big tax refund each year, contribute some of your tax refund money into an IRA (and most likely claim it on that year's tax return). Hopefully, you won't even miss it!
Do you feel like you're saving enough for retirement? Do you have a retirement fund (401(k), IRA, etc)? Have you thought about increasing your retirement savings?
i'm not expecting to ever see any social security benefits.
i've been maxing out my roth ira every year since i had my first summer job when i was 16 and putting in what i need to get my full company match for my 401k.
i think i'll be fine considering that i'm 25 and already have more in my retirement accounts than most people 20 years older than me.
Great article Corrie! I agree that we can not depend on Social Security or pensions but people need to be aware that 401k(s) are just one more option for them to take advantage of and they should not put all their eggs in that basket either. I know most everyone lost some value of their 401K in the recession but with the government seizure of my former employer my 401k was left with the holding company the new bank did not buy and I am now waiting for a bankruptcy court to release the funds so I can roll it over to an IRA and I worry what is left of it won't be released or will be lost. I also had a cash pension with that company that is also all tied up and whether I will see any of that remains to be seen. More then a decade of savings is in there. Thankfully I am not at retirement age now and have time on my side but it is frustrating and stressful. Going forward I will maximize my contribution to get a full match if that is available but I will not put a penny more in and will utilize other investment options.
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centsablemomma
That's great, Carrie! If only everyone was like you...it's amazing to me how many people are pulling it out of their retirement funds right now rather than contributing. They end up losing about 50% of it when they pull it out due to taxes and penalty.
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centsablemomma
Yikes...Tia! I hope you are able to get your 401(k) money. Of course, Enron employees had a similar problem. I was actually going to write more about IRA's and Roth IRA's, etc, but I was going to save that for another article. You definitely need to spread the risk around, especially if your 401(k) investment is in company stock (not saying yours was...just thinking of Enron).
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Olympia Silva
I would like to learn more about investments. Where is the best place to one's money in a 401K, my company does not match it. But I'm contributing. Thanks any info. would be helpful.
The 3% rule in retirement says you can withdraw 3% of your retirement savings a year and avoid running out of money. Historically, retirement planners recommended withdrawing 4% per year (the 4% rule). However, 3% is now considered a better target due to inflation, lower portfolio yields, and longer lifespans.
Consider the following tips, which can help you boost your savings — regardless of your current stage of life — and pursue the retirement you envision.
Focus on starting today. ...
Contribute to your 401(k) account. ...
Meet your employer's match. ...
Open an IRA. ...
Take advantage of catch-up contributions if you're age 50 or older.
Three R's for a Fulfilling RetirementRediscover, Relearn, Relive. When we think of the word 'retirement', images of relaxed beachside living or perhaps a peaceful cottage home might come to mind.
Retirement may seem like a distant dream, but it's never too early or too late to start planning. The “golden rule” suggests saving at least 15% of your pre-tax income, but with each individual's financial situation being unique, how can you be sure you're on the right track?
To catch up on retirement savings, consider starting by maximizing your 401(k) contributions and getting your full employer match. You'll also be able to make catch-up contributions (in addition to your normal contributions) to your IRA when you're age 50. You can leverage your home equity for a HELOC.
One well-known method is the 80% rule. This rule of thumb suggests that you'll have to ensure you have 80% of your pre-retirement income per year in retirement. This percentage is based on the fact that some major expenses drop after you retire, like commuting and retirement-plan contributions.
A good plan isn't just about the size of your nest egg. It's also about how you manage these three things: taxes, investment strategy and income planning.
If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.
While the actual allocation to each asset will be personal to you, generally, an aggressive investment mix is mostly stocks and some bonds, a more moderate mix balances stocks and bonds and adds in some cash, and a conservative mix is mostly cash and bonds with only some stocks.
The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.
The buckets are divided based on when you'll need the money: short-term, medium-term, and long-term. The short-term bucket has easily accessible money, the medium-term bucket has money in things that generate income, and the long-term bucket has money in things that grow over time.
The 4% rule is a popular retirement withdrawal strategy that suggests retirees can safely withdraw the amount equal to 4% of their savings during the year they retire and then adjust for inflation each subsequent year for 30 years.
Once you reach 59½, you can take distributions from your 401(k) plan without being subject to the 10% penalty. However, that doesn't mean there are no consequences. All withdrawals from your 401(k), even those taken after age 59½, are subject to ordinary income taxes.
According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.
Say you plan on a retirement of 30 years, you invest in a balanced portfolio, and want a high level of confidence that you won't run out of money. Our research shows that a 4.6% withdrawal rate would have been sustainable 90% of the time (see the following graph).
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