When it comes to saving for retirement, people can be their own worst enemy. Worldwide, 82 percent of people worry about how they will fare financially during retirement, but they don’t adequately plan, spending more time planning vacations than preparing for retirement.
“Many employees aren’t putting any money in their 401(k), which is often matched. That’s low-hanging fruit that they aren’t taking advantage of,” says Ray Amelio, family assets development officer at Fragasso Financial Advisors.
Often, getting started is the hardest step because people don’t understand their current expenses and what they might need in the future.
“Usually when people join 401(k) plans and start to put money away, they see how it grows and it opens up their eyes,” he says.
Smart Business spoke with Amelio about saving early and often, while monitoring your current lifestyle and spending.
At what age should people start saving?
Form the habit of saving early in life, while in your 20s and 30s, because those extra years of compound interest pay handsomely later. And if you couple that with some sort of company retirement plan and Social Security, the whole equation can generate a nice retirement package.
The younger generation seems to be savvier about this as they’ve seen their parents struggle. However, as the economy improves, some people have started to save less again.
What are the first steps to calculating your retirement needs?
Set your goals. What do you want to accomplish? The answer might be different in your 20s and 30s than in your 40s and 50s, but establishing what your retirement will look like, when you’d like to retire and with what lifestyle is key. Even though it’s far in the future, it’s similar to when you graduated high school and thought about what you’d like to do. You really didn’t know, but you had to start putting a plan together.
As you move through your career, get married, have children, etc., you can adjust your plan as necessary. Ideally, you should review your monthly statements, talk to your financial planner quarterly and meet with him or her face-to-face at least annually.
At the same time, it’s important to honestly think about your lifestyle. Keep track of how much you’re spending on things like food and entertainment, while questioning your major purchases and ensuring you don’t use credit cards too much.
Does saving for retirement start to become habitual?
If you can instill in yourself that you should be thinking about it on an ongoing basis because it will impact your future, it does become somewhat of a habit — just like you go to the dentist twice a year, have an annual physical and get your car inspected. You just need to work it into your lifestyle and keep track of where you are as far as saving goes, how you’re tracking towards your retirement goals, etc.
When should you determine that you must save X amount each month to reach Y goal?
A financial adviser can work with you to help you plan at that level. Your retirement goals will help you determine the aggressiveness and allocations of your wealth portfolio.
As an employer, how can you encourage your people to start along this path?
Education is always important to help ensure people understand and are taking advantage of any match.
A group of people may say they cannot afford to take any money out of their paycheck. But that’s really another discussion — analyzing their current lifestyle to see where they can cut back a little to at least capture those match dollars.
Also, you can automatically enroll everyone in the 401(k) plan. Employees have the ability to opt out but most don’t. This has been generating more interest from organizations that want to help their employees start their nest eggs.
A study several years ago found that 50 percent of baby boomers didn’t have $50,000 saved for retirement. Even if you fear you may fall short, giving it your best shot is better than doing nothing.
Insights Wealth Management is brought to you by Fragasso Financial Advisors
