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Americans face immediate financial concerns on a day-to-day
basis, and these take priority over long-term retirement goals.
In Bankrate's retirement
savings poll, taken in mid-September, seven in 10 Americans
(68 percent) said they are not able to reach their monthly retirement
savings goal because of other financial responsibilities.
About one-third said they are putting some money away, but not enough. Another third aren't saving anything at all. Only about 28 percent said they are meeting their monthly retirement savings target.
There's no way around it: Making retirement savings a priority requires you to set aside part of your income toward that goal. Bankrate's survey indicates that there is a lot of room for improvement.
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| Retirement poll |
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Don't get caught flat-footed
From a financial planning perspective, the rules of the game are
changing. With companies moving away from defined benefit (traditional
pension) plans to defined contribution plans, such as the 401(k),
the responsibility for retirement savings is shifting from employers
to workers. Future Social Security and Medicare budgetary issues
also raise the question of how much income and benefits retirees
will be able to count on in the future from these programs.
You're the quarterback of your financial future. It's time to call some plays.
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Monthly savings goal by age |
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| Able to achieve monthly goal |
28% |
28% |
24% |
39% |
| Able to save some, but not enough |
36% |
34% |
39% |
32% |
| Not able to save at all right now because of other financial responsibilities |
32% |
34% |
34% |
25% |
| Refused to answer |
4% |
4% |
3% |
4% |
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Employers are increasingly offering automatic enrollment
programs so that workers can contribute to retirement accounts unless
they "opt out." This should raise the level of employee
participation in 401(k) and 403(b) retirement
plans. But it's better if you take a proactive approach and contribute
even more than the auto-enrollment feature provides.
It all starts with a spending plan
You have a certain amount of household income each month. Allocating income between current consumption and investing for future goals is a financial balancing act. Making investing a priority requires cutting back on spending. Carrying a balance on your credit cards and paying 16 percent interest on current spending makes even less sense.
If your company matches all or part of your contributions to a retirement plan, not participating in that plan means you're leaving money on the table. A common approach for a company match is for the firm to match 50 percent on the first 6 percent of pay that you contribute to the plan. When you contribute 6 percent of your salary, the company chips in an additional 3 percent to your retirement account.
What to do
At a minimum, you should be contributing up to the limit of the employer's match for its 401(k) or 403(b) retirement plan. You should strive to do more than that, but whatever you do, don't leave money in your employer's pocket when it could be in your retirement account. That is simply shortsighted.
Once you contribute enough to at least get the company
match, you can consider other options. For example, a Roth IRA account
enables you to make contributions with after-tax dollars, but qualified
distributions are tax-free in retirement. As long as you meet eligibility
requirements for Roth contributions, it may be your best choice
-- especially if you don't like your company's plan's investment
options or fee structure.
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