Financial security in retirement doesn’t just happen. It requires planning, determination, and, of course, money.
fact
Only about half of Americans have calculated how much they need to save for retirement.
In 2022, more than a quarter of private-sector employees eligible to participate in retirement savings plans, such as 401(k)s, did not.
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The average American spends about 20 years in retirement.
Saving for retirement is a habit we can all embrace.
Remember…saving is important!
1. Start saving, keep saving, and stick to your goals
If you’re already saving, whether for retirement or another goal, keep going! Saving is a beneficial habit, you know it. If you’re not saving, now is the time to start. Start with a small amount and try to increase the amount you save each month if necessary. The sooner you start saving, the more time your money has to grow (see chart below). Saving for retirement should be a priority. Make a plan, stick to it, and set goals. Remember, it’s never too early or too late to start saving.
2. Understand your retirement needs
Retirement is expensive. Experts estimate that you’ll need 70% to 90% of your pre-retirement income to maintain your standard of living when you stop working. You need to take control of your financial future. The key to a secure retirement is to plan ahead. Start by reading Healthy Savings: Your Guide to Your Money and Financial Future and Taking the Mystery Out of Retirement Planning for those approaching retirement . (See overleaf for a copy.)
3. Contribute to your employer’s retirement savings plan
If your employer offers a 401(k) or other retirement savings plan, join it now and contribute as much as you can. Your taxes will be lower, your company may contribute more, and automatic deductions are convenient. Compounding and tax deferral can make a big difference in how much you can save over time. Learn the details of your plan, such as how much you need to contribute to get your employer’s full match and how long you have to be in the plan to get the money.
The benefits of starting to save early
Get started now! This chart shows how much your investment would add up in 5, 15, 25, and 35 years if you save $6,500 per year and earn 7% annually.
4. Understand your employer’s pension plan
If your employer has a traditional pension plan, you need to find out if you are covered by the plan and how it works. You can ask for a personal benefit statement to see what your benefits are worth. Find out what happens to your pension benefits before you change jobs. Find out what benefits you might get from your previous employer. Find out if you are entitled to benefits from your spouse’s plan. For more information, ask for a copy of What You Need to Know about Retirement Plans. (See overleaf for more information).
5. Consider basic investment principles
How you save is just as important as how much you save. Inflation and the types of investments you make play a big role in how much you’ll have saved when you retire. Understand how your savings plan or pension plan is invested. Learn about your plan’s investment options and ask questions. Spread your savings across different types of investments. With this diversification, you’re more likely to reduce risk and increase returns. Your investment portfolio can change over time, depending on a variety of factors including your age, goals and financial situation. Financial security and financial literacy go hand in hand.
6. Don’t dip into your retirement savings
If you withdraw your retirement savings now, you’ll lose both principal and interest, and you may lose tax benefits or have to pay a withdrawal penalty. If you change jobs, keep your savings invested in your current retirement plan, or roll them over to an IRA account or a plan with your new employer.
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7. Ask your employer to set up a plan
If your employer doesn’t offer a retirement plan, suggest that it start one. There are many retirement savings plans to choose from. Your employer can set up a simple plan that helps both of you. To learn more, request a copy of Choosing a Retirement Solution for Your Small Business . (See overleaf for more information).
8. Put money into an individual retirement account
You can contribute up to $6,500 per year to an Individual Retirement Account ( IRA ); if you’re 50 or older, you can contribute more. You can also start with a lower amount. IRAs also have tax advantages.
When you open an IRA , you have two options—a traditional IRA or a Roth IRA . The tax treatment of your contributions and withdrawals will depend on the option you choose. Also, the after-tax value of your withdrawals will depend on inflation and the type of IRA you choose . IRAs can provide an easy way to save. You can set up automatic deductions from your checking or savings account and deposit them into your IRA .
9. Understand your Social Security benefits
On average, Social Security retirement benefits cover 40% of a beneficiary’s pre-retirement income. However, the amount of wages that Social Security retirement benefits replace varies because people have different incomes and the age at which they choose to start receiving benefits. You can estimate your benefit using the Retirement Estimator on the Social Security Administration’s website . For more information, visit the agency’s website or call 1-800-772-1213 .
10. Ask questions
While these tips are meant to point you in the right direction, you’ll need more information. Read the publications we list overleaf. Talk to your employer, bank, union or financial adviser. Ask questions and make sure you understand the answers. Get practical advice and take action now.
