October 2024
Barbara O’Neill, Ph.D., CFP®, AFC®
Distinguished Professor and Extension Financial Management Specialist Emeritus
Rutgers Cooperative Extension
For many years- decades, actually- there have been dire predictions from various media outlets about the ability of baby boomers (and younger generations) to maintain their standard of living in retirement. Some have used phrases like "potential train wreck" or "perfect storm" to describe what lies ahead as people live longer with meager savings and less support from employer and government benefits.
Roughly 20% of older workers have no retirement savings according to a recent AARP survey. In addition, over a quarter say they expect to never retire. What to do? Do something. If you're concerned about your future financial security, any savings or other preparation for retirement (e.g., repaying debt) is better than none.
Below are ten small steps to achieve a financially secure retirement:
Don't Procrastinate- Start saving something, beginning today, if you have little or no savings. The earlier you set money aside, the better, due to the power of compound interest. Consider saving a dime for every dollar earned.
Calculate Your Retirement Savings Need- Try at least three retirement savings calculators because their data inputs and assumptions vary. Output from these calculators will help you develop a savings plan.
Pay Yourself First- Make retirement savings a priority by automatically setting aside a percentage of your income for retirement, via payroll deduction, before spending that money on anything else.
Get With a Plan- Participate in a qualified retirement savings plan, such as 401(k)s (at for-profit companies) and their "first cousins" SEPs (for small businesses) and 403(b) plans (at educational and non-profit sector employers).
Get Free Money- Don't miss out on employer match to your retirement savings. A typical employer match is 50 cents for every dollar workers contribute, up to 6% of their pay. This is an automatic 50% return on your money!
Start an IRA- Open an individual retirement account (IRA) if you have earned income from a job or self-employment and fund your IRA with money that has not been taxed (traditional IRA) and/or with after-tax dollar income (Roth IRA). Annual contribution limits apply, as they do for employment-based savings plans.
Create Multiple Income Streams- Consider a "side hustle" to earn additional income in addition to a W-2 income from an employer. Many people are able to turn their "day job" skills or hobbies into a secondary income source.
Play Catch-Up- Take advantage of available catch-up retirement savings contributions if you are age 50 and over. In 2024, you can save an additional $1,000 in an IRA ($7,000 total) and an additional $7,500 in a tax-deferred 401(k), 403(b), or 457 plan (up to $30,500 total). Save as much as you can when you can.
Pay Down Debt- Focus on paying off credit card debt or high interest loans as quickly as possible to avoid extra costs. Some credit card annual percentage rates are 30%+! Also try to pay off your mortgage before you retire.
Work Longer, If Possible- Consider the following benefits of working a bit longer than originally planned: extra time to save and accumulate assets, higher Social Security and/or pension benefits, and a decrease in the amount of savings needed (by shortening the length of the retirement period).
In summary, there is a lot that people can do individually to achieve a financially secure retirement. Even if you don't reach that elusive $1 million holy grail number (actually $1.46 million in 2024) that media pundits refer to, every small step will make a positive difference. It all begins with a desire to change and a solid action plan.