Resolve to Increase Your Retirement Savings Contributions

These days, saving for retirement is completely up to you. The days of working for one company your entire career and of counting on a guaranteed monthly income in retirement are over. Why? Most companies have decided that having a defined benefit plan (a pension) for employees is too costly and too unpredictable.

I can’t say that I blame these companies too much. It is virtually impossible to budget what goes into a defined benefit plan on an annual basis. Further, all of the employees’ benefit dollars are managed in one big pile, making it difficult to address the investment needs for each individual in the plan.

However, it’s not all doom and gloom out there. The IRS (and many employers) have done a lot to encourage people to save for themselves. Plan contribution limits have increased significantly, and many plan features (such as offering a ROTH option) have given savers more flexibility than ever before. The hardest part for most of us is actually contributing enough (or any!) to these types of plans. Many are still not comfortable with the idea of having money “withheld” from their paychecks each pay period. The excuses are voluminous and are easy to come by, because there isn’t much immediate reward for electing to receive less money in your checking account every month.

Yet, it is important to understand that the long term effects of not saving enough can be very limiting and, in some cases, disastrous. Yes, social security will continue to exist in some way, shape, or form, but it will almost certainly not be enough for most of us to live the life we want in retirement. So, from where will that paycheck replacement come?

The answer is from your own savings that you have dutifully stashed away each pay period. How you invest that savings is very important too, so make sure you are taking the right amount of risk for your situation. Note that this can mean taking either more or less risk.

Finally, if you work for an employer that not only offers a good plan, but also matches some of your contribution dollars, consider yourself fortunate. And, if you are not participating in a plan that is offering to match what you put in, you are quite literally leaving money on the table. A nice round number to shoot for when saving for your retirement is 10% of your total compensation. This may not be possible for everyone, but if you slowly work up to that number over a few years, you may not even notice much of a difference. Keep in mind that most plan contributions are pre-tax, so your money is going in before taxes, thereby reducing your taxable income as well as saving.

Categories : Money IQ

Leave a Reply

Your email address will not be published. Required fields are marked *