It’s common for people to have a number of concerns when confronting the necessity of saving for retirement.
Fortunately, there are several tools people can use to combat these retirement worries, including 401(k)s, careful planning and consulting with financial advisors to develop effective strategies.
Related: The average American’s retirement, Social Security worries explained
One major fear people have is that they might run out of money during their retirement years. This concern is exacerbated by an otherwise positive development: increasing life expectancies.
Another is inflation. The purchasing power of a person’s savings is diminished with inflation because the total dollars available to them remains the same as prices go higher.
Health care costs are another big concern for people saving for retirement. So is the future of Social Security, as its trust funds are projected to no longer be able to pay 100% of retiree benefits beginning in 2035.
Many people, regardless of age, take a close look at their retirement savings and come to the frightening realization that they are behind 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 options people have who find themselves in such a situation.
Playing catch-up on retirement savings and 401(k) investments
Gittens talked with Miller about ways people can get their savings back on track when they find themselves slipping behind their objectives.
“What’s the best way to play catch up?” he asked.
Miller suggested a broad and simple mathematical formula against which a person can check their progress.
“There are a lot of ways to get there, right? First of all, I would say there’s a lot of great, we call them calculators, online,” Miller said. “Take a look online, see what it shows you. We kind of like to say, depending on your age, think about trying to accumulate about 10 times your income currently to be ready for retirement. So that’s just a rule of thumb to get started.”
More on retirement:
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Miller explained a bit about the strategy behind using a 401(k) to help a person make up some ground on retirement savings.
“So if you find you’re behind the eight ball, the easy answer is, I guess I have to save more,” she said. “But how do we do that? If you’ve got a 401(k) plan or a 403(b) at work, a lot of times we find people are only contributing up to a match and they’ll tell you, ‘I’m at the maximum, I get the full match.'”
“And we say, no, no, no, no. Let’s go beyond the match,” Miller continued. “So the first thing that is always one of the best ways is to save at work. It comes right off your paycheck and those are usually great programs. So if you can try upping for the second half of the year how much you’re taking out for your 401(k), you can usually adjust those a lot.”
A retirement savings graphic is seen on a smartphone with a table, computer, coffee and book. Liz Miller explains some methods people can use to play catch-up on retirement if they are falling behind.
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Understanding how much retirement savings is possible
Miller explained some day-to-day experiences she has had working with people on figuring out an effective amount of money they should be saving for retirement.
“I work with a lot of young people in their 20s where, when I have a discussion with them, they don’t even really know what they can live on,” she said. “So we say, well, let’s move it. Until you feel a little pain, you let me know. And then we’ll pull it back. So we kind of keep pushing more and more of their paycheck to be immediately taken into that retirement plan.”
Miller also suggested a different method people can implement for retirement savings.
“Another way to do it — particularly if you don’t have a retirement plan at work — is to again, take it right off the top,” she said. “Set up a transfer from your checking account where your paycheck comes right into a Roth IRA.”
“Open a Roth IRA at a Vanguard or a Schwab (SCHW) . They make it really easy,” she added. “And then you link your checking account and you set up an automatic deposit every time your paycheck comes in, so that it doesn’t end up in that spending bucket. You take it right off the top.”
