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Small Steps to Secure Your Future

March 2019

Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension

Whether people prefer to use the “R word” (retirement) or not, everyone is concerned about their financial security in later life. The good news is that small steps that people take today can greatly enhance their future lifestyle when they get older. Below are ten tips to save enough money to live comfortably in the future:

Develop a Plan - Studies show that people who do a retirement savings calculation save more money, on average, than those who do not. The American Savings Education Council's Ballpark Estimate is a simple six-step retirement planning tool. Calculations can be made online or by downloading a printed worksheet.

Plan for a Long Retirement - Longevity is the remaining life span for someone who reaches a specific age, such as 65. Retirements today often last 25 to 30 years, or even longer, and people need to save enough so that their money lasts throughout their lifetime.

“Find” Money to Save - Keep track of small daily expenses that add up over time and develop a plan to reduce them. Other money-saving strategies include refinancing a home mortgage, keeping a car longer, and saving money from household expenses that end, such as child care and car loan payments.

Start Saving Today - Compound interest is not retroactive. In other words, you cannot earn interest on money that you did not previously save. For every decade that someone delays saving for retirement, the required amount of savings to reach a financial goal (e.g., $500,000 of savings at age 65) approximately triples. Don't beat yourself up if you haven't been saving since your early 20s. Just get started today.

Maximize Your Match - If you are fortunate enough to have an employer that matches a percentage of your personal retirement savings, try to save enough to earn the maximum match. This is “free money” that should not be passed up. Many employers match 50% of their workers' savings deposits up to 6% of gross income. For example, a worker earning $40,000 and saving 6% ($2,400) would save another $1,200 with a 50% match.

Earn More, Save More - When you get a raise, increase your retirement savings. Saving just 1% more of your pay can result in tens of thousands of dollars more at age 65. According to Advantage Publications' Boost Your Retirement Account! calculator, someone age 40 earning $40,000 would have an additional $41,080 at age 65 by saving an extra 1% of pay annually and over $60,000 with a 50% employer match.

Invest for Potential Growth - Keep a portion of your retirement savings in stocks or growth mutual funds. These investments stand a better chance of staying ahead of inflation and taxes over time than bonds, CDs, and money market funds. However, never make investments that you do not understand or feel comfortable with.

Consider Delaying Retirement - Studies have found that pushing back retirement by three years can stretch savings another 7 to 10 years for three key reasons: a longer time to save and have compound interest grow accumulated assets, a higher Social Security and/or pension benefit, and delayed withdrawals from savings.

Consider Working During Retirement- Many people want to work after they retire, often on a part-time or flexible work schedule. Work provides social contacts, a sense of purpose, and financial benefits. Earning a $20,000 income is equivalent to making a 4% withdrawal from $500,000 in savings.

Stretch Savings Withdrawals- For many people, it makes sense to withdraw money for retirement living expenses from taxable accounts first. Leave tax-deferred accounts such as 401(k)s and traditional IRAs growing until required minimum distributions must begin at age 70 ½. Another money-stretching strategy may be to convert a traditional IRA balance to a Roth IRA. Seek professional advice when needed.