provided by Nicole Albrecht
Here’s how to turn things around and get back on track in 2013. In survey after survey, the bad news keeps coming. People are not saving enough money for retirement. In fact, 54% of people age 44-49 feel totally unprepared for retirement. And there are plenty of reasons they feel that way.
While more than two-thirds of folks in their 40’s are saving for retirement, fewer than half have tried to determine how much they will need to retire comfortably. About a third of these workers think they could retire on $250,000 or less in savings. But about half of them have less than $10,000 in savings and investments. If you’re in this boat, then make 2013 the year you start to turn things around.
You still have time to build a respectable retirement nest egg if you make a plan and stick to it.
First, get out of debt, except for the mortgage. Once you have a life without bills, you can use your income to start building wealth, starting with an emergency fund of 3-6 months expenses.
Next, start investing 15% of your income in tax-favored retirement accounts like a 401(k), an IRA or a Roth IRA.
ü If you have a 401(k) with an employer match, invest up to the match.
ü Invest the remainder in a Roth IRA for tax-free withdrawals in retirement or a traditional IRA if your income exceeds Roth requirements.
ü If you max out your IRA (currently $5,500 per year) and you still haven’t invested your full 15%, increase your 401(k) contribution.
Using this plan, a 40-year old making an average annual salary of about $40,000 could save $950,000 by the age of 65. But you must start right away. Reducing the investment period by only 5 years will cut your nest egg down to $500,000. Investing for only 10 years will mean you’ll only have $116,000 for retirement.
These numbers are based on the long-term average annual return for the stock market as a whole. But the smaller time horizon can make an older investor more susceptible to market volatility.
Nicole Albrecht may be reached at 951-719-1515 or nicolea@taxmanfred.com“>nicolea@taxmanfred.com