It is common for people to have a number of concerns when faced with the need to save for retirement.
Fortunately, there are several tools that people can use to combat these retirement concerns, including 401(k) plans, careful planning, and consulting with financial advisors to develop effective strategies.
Related: The Average American's Retirement and Social Security Concerns Explained
One of the main fears people have is running out of money during their retirement years. This concern is exacerbated by an otherwise positive development: the increase in life expectancy.
Another is inflation. The purchasing power of a person's savings declines with inflation because the total dollars available stay the same as prices rise.
Health care costs are another big concern for those saving for retirement. So is the future of Social Security, which is expected to no longer be able to pay 100% of retirees' benefits starting in 2035.
Many people, regardless of age, take a hard look at their retirement savings and come to the terrifying realization that they haven't met their goals.
Liz Miller, CFP and founder of Summit Place Financial, recently sat down with TheStreet host Conway Gittens at the New York Stock Exchange to discuss the options available to people who find themselves in such a situation.
Catching up on retirement savings and 401(k) investments
Gittens spoke with Miller about ways people can get their savings back on track when they find themselves falling behind on their goals.
“What's the best way to catch up?” he asked.
Miller suggested a broad and simple mathematical formula with which a person can check his progress.
“There are a lot of ways to go about it, right? First of all, I would say there are a lot of online calculators, we call them that,” Miller said. “Take a look online and see what it shows you. We like to say that depending on your age, think about trying to accumulate about ten times your current income to be ready for retirement. So that's just a general rule of thumb to start with.”
More on retirement:
- The average American faces a major dilemma when it comes to retiring with 401(k) plans.
- Why Your Mortgage Is Key to Early Retirement
- A few simple tasks can help you thrive in retirement
Miller explained a little about the strategy behind using a 401(k) to help a person regain some ground in their retirement savings.
“If you realize you're at a disadvantage, the easy answer is, I guess I need to save more,” she said. “But how do we do that? If you have a 401(k) or 403(b) plan at work, we often encounter people who only contribute up to a matching contribution and say, 'I've maxed out, I get the full match.'”
“And we say, no, no, no, no. Let's go beyond the matching contribution,” Miller continued. “So the first thing that's always one of the best ways is to save at work. They take it right out of your paycheck and those are usually great programs. So if you can try to increase in the second half of the year the amount that you take out for your 401(k), you can usually adjust it a lot.”
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Understanding how much you can save for retirement
Miller explained some of the day-to-day experiences he's had working with people to determine the effective amount of money they should save for retirement.
“I work with a lot of young people in their 20s and 30s who, when I talk to them, don't even know what they can live on,” she said. “So we say, well, we're going to roll it over. Until you feel a little pain, you tell me. And then we take it back. So we keep pushing for more and more of their pay to go immediately into that retirement plan.”
Miller also suggested a different method people can take to save for retirement.
“Another way to do it, especially if you don't have a retirement plan at work, is to have it deducted directly from the account,” she said. “Set up a transfer from your checking account so your paycheck goes directly into a Roth IRA.”
“Open a Roth IRA at a Vanguard or Schwab (SOUTHWEST) “They make it really easy,” he added. “And then you link your checking account and set up an automatic deposit every time your paycheck comes in, so it doesn't end up in that spending bucket. You deduct it right off the top.”
