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Are You Doing Enough To Ensure A Comfortable Retirement?

Category: Articles

By David Albert, CPA, CFP®

Are you saving enough for retirement?  A new Government Accountability Office study indicates that nearly 29% of households with members aged 55 or older have no retirement savings or a traditional pension plan.  What can you do early in your career to avoid ending up in this situation? 

One simple answer is to participate in any retirement plan offered by your employer.  To encourage this participation, many plans now have automatic enrollment – as soon as employees become eligible for the plan, they are automatically enrolled unless they opt out.  Without automatic enrollment, newly eligible employees have to make the decision to participate. 

It seems obvious that automatic enrollment should be a good thing by enrolling people who might otherwise have not choose to participate.  The problem seems to be that the auto-enrollment contribution amount tends to be low (3% or less), lower than studies show those enrolling on their own elect.  Additionally, auto-enrolled employees are less likely to increase their level of participation over time, perhaps erroneously believing that the auto-enrollment level must be sufficient or it would be higher.

What should you do?  If you are offered a retirement plan at work, it’s pretty simple; enroll.  If you are already participating, increase your level of participation.  Use a portion of any raise to increase your retirement contribution.  As quickly as possible, contribute enough to receive 100% of any employer matching money.  If you do not have a plan through your workplace, establish an IRA.  You should be able to arrange for automatic transfers from your checking account into the IRA or your employer may be able to split your direct deposit with a portion going to your IRA.  Speak with your financial adviser about which type of IRA makes the most sense for you. 

Once you maximize the employer match, consider whether it makes more sense to keep increasing your contribution level or to fund an IRA.  For most people, the ease of contributing at work and having just one investment to manage makes the decision simple.  But others desire the investment flexibility of a self-directed IRA.  Of course, once you contribute the maximum allowed under IRS regulations to your 401(k) plan ($18,000 with a $6,000 catch-up for those aged 50 or older), you should consider an IRA for additional savings.  (IRA limits are $5,500 with a $1,000 catch-up).  Depending on your income, the contribution to the IRA may not be tax deductible.

Social Security was never intended to be more than a portion of your retirement income.  And, there’s no guarantee that it will still be around by the time you retire.  The only way to prepare for a comfortable retirement is to start saving early, take advantage of any “free money” (aka employer matching), never cash out a plan when you change jobs (either roll it into your new employer’s plan (if permitted) or into a rollover IRA), and keep increasing the percentage of your income that you are putting into retirement savings so that, ideally, you eventually put away the maximum amount permitted each year. 

However, even if you contribute the maximum amount to your retirement plan, it is possible that this will not yield a sufficient amount to have a comfortable retirement, even if you factor in Social Security benefits.  Therefore, you may need to save additional amounts over and above your contribution to your employer’s retirement plan. 

David Albert, CPA, CFP®, is a shareholder in Rubino & Company’s tax practice.  He also is in charge of the wealth management practice of the firm and is a practicing attorney.  He has over thirty years of experience working with wide range of clients assisting them with complex tax, estate planning, and financial advisory issues.    

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