We had a family get-together last weekend, and over dinner, my oldest son asked me whether I thought he was saving enough for retirement if he put away exactly the amount that his employer matches.
My son and his wife are in their mid-30s. They don't have children. My daughter-in-law works part time at a job where there are no benefits. She recently became an American citizen, and we hope that will make what has been a long hunt for a full-time job more fruitful. Although my son makes a very good salary, he has piled up a huge student loan debt from graduate school. On top of that, the cost of housing in San Francisco where they live is brutal.
Under those circumstances, he asked, what sort of retirement planning should he be doing to make sure he'll be able to live comfortably?
The company for which my son works matches 100 percent of the first 6 percent of pay that he contributes to his 401(k) retirement savings. That's the most common type of match, with 27 percent of employers participating to that extent, according to the 401(k) Help Center. That means that if my son kicks in 6 percent and his employer kicks in 6 percent, he's actually saving 12 percent.
While 12 percent is a significant amount, it probably isn't enough to ensure a comfortable retirement. Fifteen -- even 20 percent would be better -- so I suggested that he kick it up a notch. Bankrate.com's story about retirement savings in your 30s points out that even a 1 percent increase can make a huge difference in the long run.
I also suggested he rethink his Roth strategy in favor of a conventional, tax-advantaged 401(k). Some people would disagree with me, but I know he already has some retirement savings from a prior job in a Roth and saving in a traditional 401(k) plan will help him find a few more dollars to put aside -- without feeling pinched.
I also urged my daughter-in-law to fund her own IRA. As a long-time wife myself, I think it is important to have money you can call your own. Plus, her savings will be available to add to the retirement pot when the time comes.
I look back on my 30s and remember only a blur of kids and work. Saving money for a faraway retirement didn't seem very important. I think my son is smarter than his mother.