It’s all well and good for people like to me tell you to save more money. That’s great but how do you make it happen? Many people I talk with are already stretched, and when I suggest they put more money aside every paycheck, I get the evil eye.
So let’s step back a minute. Studies and questionnaires tells us that over 60% of Americans consider themselves behind the curve when it comes to accumulating money to pay for retirement. That’s a lot of people.
What I have yet to figure out is whether those same people are going to retire soon or see it as something far into the future. When you’re in your 30’s or even 40’s, thinking about and planning for retirement seems like a wast of time. It’s simply too far down the road and there seems like plenty of time to get in front of the curve.
Unfortunately, the problem becomes more acute the longer we wait to do something about it. If you manage to stay alive, the day will come. And the huge question then becomes “ARE YOU READY?”. Millions of Americans know they’re not ready and it becomes a stress point that doesn’t just disappear.
I see two ways to solve this problem. One is to somehow have more money when you do retire or find ways to make your retirement cost less. Or both. Some will argue you can never have enough money. Others will argue there’s no way for it cost less other than to die before you get there. How do you reconcile the two? If can do a little of both, you may not have to.
For now, let’s talk about a few ways to increase your chances of having more money. I’ll write another post about reducing your costs without having to drop dead.
There are ways you can set aside money from whatever you earn so that your present life can move forward normally. Fundamentally, you know it’s necessary to save something for the future. You must find ways to either get started or find ways to add more as the years roll by.
If you work where there’s a 401K plan or it’s equivalent, then take advantage of it. If your employer provides any matching money, then try to meet the minimum to qualify for that matching percentage. Think of it this way; after retirement, the taxes you have to pay on what you withdraw to pay your bills are being paid from your employers share.
Make an effort to increase your financial literacy. For some people it’s really hard to understand money and finance. When something crosses your desk about retirement or you see a magazine article that involves money, it gets treated as noise and you ignore it. Which is OK for a while but you may already realize that years pass by more quickly as we age. Is it realistic for you to retire someday and what are you doing NOW to get ready?
Find the discipline to start making specific contributions, even just a few bucks every month, to some kind of account where the income taxes are deferred. Your local credit union or favorite bank will have someone to help you open an IRA. For those of you who don’t know, IRA is short for Individual Retirement Account. The Internal Revenue Service (IRS) gives you permission to exclude those dollar from earned income when you earn it. There are more rules about these accounts you’ll have to pay attention to, but you can learn those later.
When you do get comfortable setting aside amounts every month into some kind of tax deferred account, and you will, automate it. That way you no longer have to think about it. You should also understand that banks, credit unions, insurance companies, and brokerage firms, all enjoy having your money sit in an account where they are the custodian. (That’s another term that has significance when it comes to paying or not paying taxes on money that comes out of your paycheck BEFORE it gets taxed.)
To encourage you to use their solution for your accumulating pile of money, they’re going to try and make it easy for you to systematically increase the amount you deposit to that account. If you can, take advantage of that. Just be careful.
The other side to the coin I just told you about is that the same banks, credit unions, etc., all make money for themselves when you put your money with them as your custodian. That’s OK because for this to work, they have to stay in business.
Some of your effort to develop better financial literacy involves your understanding that while fees are OK, some custodians are more interested in making money for themselves than they are in helping you. They don’t care whether you have enough money to retire properly, they need to make money NOW. If that ends up hurting you because you didn’t pay attention, too bad. Start paying attention to the fees charged, and know there are some that don’t need to be legally disclosed.
At some point, as your level of financial literacy increases, you’re going to want to move beyond a simple savings account into investments that have the potential to grow significantly over time. Don’t be fooled by statistics that say life expectancy rates are declining. They may be overall, but if you manage to reach your 50’s and 60’s, you have every reason to think that retirement will last 20 – 25 years.
That means the next big question you must ask of yourself is how will you pay your bills when you reach age 80 and beyond? Assuming you do live that long. In the meantime, another option is to find ways to increase your income sooner rather than later. I suspect you already know that.
Lastly, a little self-promotion which I hope you’ll find OK. I recently retired after 45 years as a financial professional. To stay busy, I’ve created an online school designed to “train your brain about retirement”. It’s an online school that teaches a new way to think about, and plan for retirement. The goal is to help everyone achieve a worry free and financially secure retirement.
Tony Kendzior, CLU, ChFC \ November 4, 2019