Many Americans find themselves playing catch-up when it comes to saving for their own retirements.
So, let's talk about the levers that people can pull when they find themselves in this situation. I think some people might be naturally inclined to just make their asset allocation really aggressive and hope that that will pick up the slack for them, but there are some better ways to go about it.
We do tend to think of the asset allocation first, and that can be, more generalized, somewhere between 40% and 60% in equities as you approach retirement, but that's really not the key.
The key is saving. So, if you're afraid that you're not going to achieve the goal that you want, then the first thing you should do is try to increase the amount you're saving, the percent of salary.
So a lot of people today are contributing around 10%. They really ought to be contributing 15%, and if they're behind, then definitely see if you can inch your way up to 20%, so that will make a big difference long term.
So savings rate, and pushing retirement dates out further into the future--can impact. So you pick up dollars on a couple of different fronts: You are deferring your Social Security receipt date, you are continuing to contribute to those retirement plans, and probably most importantly you are not dipping into your nest egg.
Putting time on your side is the most important concept for folks who are in their 50s, for example, to realize and understand. Some who have just had their children go through college say, "Now it's our turn," and so they start to take those trips, perhaps a little prematurely.
What makes more sense is to accelerate the savings while you are still in your 50s. That puts some more time on your side for those contributions to compound. If you wait until your 60s, now the contributions will mean less. They will have less of an effect because they have fewer years to compound. So if it's going to be a trade-off, and you try to catch up in your 50s or 60s, front-load it in your 50s.
So tighten your belt sooner.
That's going to make such a difference, because it's going to take the pressure off when you hit your 60s, and you are still in great shape to go have those trips.
Also with 40k(k) plans, leaving [employer] matches on the table is unconscionable. Absolutely, that's free money. So if your employer is offering you a [retirement plan] match, you always should contribute up to that point, so that you get the full match.
One thing that's kind of interesting--is to put more time on your side for your nest egg to compound. As you are working longer, I start to think of that as a match. If I work one extra year, and I was making $75,000, one extra year is $75,000 that I hadn't saved that I can spend, so that's almost a 100% match, if you think about it in the same terms.
So we must not look a gift horse in the mouth. If you have a good job and you're not at risk, even if you are not enjoying it quite as much, think about sticking with it, because the benefits for you will be tremendous long term.
No comments:
Post a Comment