According to a 2014 Federal Reserve report, “many households are not adequately prepared for retirement”. The report states that 31% of non-retirees have no pension and haven’t saved a dime for retirement. Even scarier, 19% of those are ages 55 to 64. Nearly 50% of adults “were not actively thinking about financial planning for retirement”.
Are you prepared for retirement? Are you taking the appropriate steps now to provide a comfortable income throughout your potentially 30+ years of retirement? It’s up to you. No one else is going to do it for you.
If you aren’t saving, START NOW! And if you aren’t saving at least 10% of your income specifically for retirement, restructure your spending to do so as soon as possible!
Did you know that if you save $2000 (per individual) into a retirement account you could get a tax credit of $200, $400 or even $1000? The Saver’s Credit is a valuable government incentive for individuals earning less than $30,500 and couples earning less than $61,000 (2015 limits). Make a contribution into just about any retirement plan and you’ll be eligible for the credit. Enter “IRS saver’s credit” in Google to learn more.
Does your employer offer a 401k plan? Be sure to contribute at least the required amount to receive the free company match (if offered). Are you already saving into the plan? Good. Increase your savings rate by at least 1% annually until you reach the maximum contribution limit. The limit for 2015 is $18,000, plus the catch-up amount of $6,000 if age 50 or older.
If you’re younger you should look at using the Roth 401k option (if offered) and/or a Roth IRA. Time is on your side to grow the account balance long term, and distributions are tax and penalty free after age 59-1/2, as long as the account was opened for 5 years. You can still make 2014 Roth IRA contributions until April 15, 2015 as long as you have earned income in 2014. This is a great option for teenagers and college age kids who had summer jobs. Caution - if your income is too high you may be ineligible to make Roth contributions.
Lastly, those of you who are self-employed have many options to consider. Depending on your situation and the retirement account type you can save as much as $53,000 pre-tax (2015 limit). Higher savings options exist for higher incomes in unique circumstances. Talk to your trusted advisor, CPA, or your financial institution about which option is best for you.
Be wise. Setup your giving/tithing plan and save for retirement, THEN use what’s left to provide for you and your family. This may force some meaningful conversations, but the key is to save early and often.