How to Retire Richer It doesn’t matter how young you are, follow these tips and take a few simple steps and you and your spouse will be on your way to a comfortable retirement. BY LYNN MAYABB
With the right planning, you and your spouse will be cruising down Easy St.
When you’re, say, 25 and newly married, retirement planning typically isn’t a top priority. But, perhaps it should be.
Sure, getting a career established is important, as are discussions about buying a house, starting a family or just having fun—after all, you’re only young once. Yet, by taking a few simple steps now, you can take care of those issues while still getting a head start on your retirement.
Admittedly, balancing retirement savings with other living expenses can be a challenge. To get started, all adults—regardless of age—need to think of saving for retirement as paying a "retirement bill," just as they pay any other fixed expense. And, the earlier one begins to pay that bill, the easier it is to accumulate funds.
Starting a savings program at age 25 versus age 35 can make a tremendous difference. For example, a person who begins saving $100 per month at age 25 would have $351,400 accumulated at age 65, assuming an 8 percent rate of return, versus $150,030 for someone who began saving that same monthly amount at age 35. That’s a $200,000 difference in accumulated savings, even though only $12,000 more was saved by the 25-year-old.
So, how do you start saving when you have other expenses? It’s important to take advantage of the opportunities available.
Making use of your company’s 401(k), 403(b), IRAs or other retirement plan is truly a benefit. Money saved (deferred) into a retirement plan can help reduce current taxes. Therefore, $1 saved is not equal to $1 out of your budget or pocket because federal and state taxes are not withheld from the money saved.
In the case of an IRA, a deduction for IRA contributions may be available, which can further reduce income taxes. So, in essence, the tax you save is helping fund your retirement.
In addition, many companies will match employee savings into their retirement plans—such as for each 3 percent contributed by the employee, the company also contributes 3 percent. Therefore, saving and taking advantage of the employer’s match is the equivalent to getting a raise or "free" money.
At a minimum, each employee should strive to contribute sufficient salary into their retirement plan to receive the matching company funds. If only one spouse’s plan offers a matching contribution, it may make sense to concentrate the majority of your retirement savings into that plan until the full company match is received. The other spouse could open an IRA for additional savings.
Essentially, using a company retirement plan allows people to save for retirement at a "discount." Since everyone likes a sale, think of saving for retirement as a bargain you can’t afford to pass up.
Lynn Mayabb, CFP, is the assistant office director and senior managing advisor in BKD Wealth Management’s Kansas City, Mo., office. She may be reached at email@example.com or 816-221-6300.