GROWTH

Am I Saving Enough for Retirement?

By Nancy Miller

To many, retirement fuels images of relaxing vacations, mastering hobbies, and helping fund grandchildren's futures. Whether you're counting down until your last day in the office, or just beginning to sock away money for the future, keep these 6 key points in mind to help save for retirement and ensure your retirement days are financially stress-free:

Maximize the power of compounding

People usually go with the flow when it comes to saving for retirement, which is another way of saying they don't plan. By waiting too long before beginning to save, you could miss out on a decade or more of saving, and more importantly, the compounding of earnings on the savings. The younger you are when you start saving for retirement, the greater your compounding advantage. A financial planning calculator can help you find out if you're saving enough for retirement and other life goals.

Don't count on entitlements

Many people assume that Social Security and another pension source (either from a private company or government job) will bail them out if they don't have enough saved for retirement. But counting on those sources of income too heavily can be a mistake for two reasons: People are living longer than ever, and those benefits aren't 100% secure.

Keep inflation on the radar

This could be one of your largest concerns to keep in mind. While you may have a fixed number in mind for what you'll need to live off of once you're retired, that amount may need to be significantly larger. For example, if inflation is running at 3%, in 20 years retirees will need $90,000 in to maintain the buying power of $50,000 today.

Earmark a percentage of your earnings

You should plan on putting away at least 5% to 10% of earnings year in and year out to meet your goals, depending on your age. If you're in your 50s, you'll probably need to save 15% to 20% to catch up on lost time. If you're in your 20s, 5% might be all you'll need to save for retirement at this point because you still have several decades of saving ahead of you before your retire.

Consider the tax advantages

The tax code and many employers favor people who are willing to save money for the future. If you think you may not be contributing enough to your 401(k), at a minimum try saving enough to benefit from any matching programs your employer might offer. Many employers match $1 for every dollar you contribute to your 401(k), up to 6% of your salary. By contributing anything less, you could be missing out on additional earnings.

Max out, if you can

Every year the Internal Revenue Service updates the maximum amount taxpayers can put away in their 401(k)s or Individual Retirement Accounts (IRAs). Check the IRS website* for limits and aim to max out on your contributions if you can.

*Please note that by visiting the URL or hyperlink referenced in this publication you will enter another website created, operated and maintained by a different entity.

Nancy Miller is a New York-based financial journalist who has been published in numerous national print and digital publications.

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