Back in 2006, a couple of U.S. Senators took it upon themselves to create a national retirement security awareness week, set for the third week in October.
As you can imagine, the intervening twists and turns in the stock market — the 2008 Great Recession and the Covid crash in 2020 — only served to highlight the ongoing need for serious conversation about the topic.
Now all of October is National Retirement Security Month, sponsored by the Lexington, Kentucky-based National Association of Government Defined Contribution Administrators (NAGDCA).
To mark the occasion, here are five practical steps you can take to secure your own retirement. Some are easy and some are, well, perhaps a bit challenging. But combined they can make a real difference in your long-term financial life.
Step No. 1: Just start saving!
Okay, probably not the easiest thing to do, but it can be. If you have a job with a 401(k) plan and you’re not already enrolled, get on that now. You’ll get an immediate tax break for doing so and in many jobs a no-strings matching contribution from your employer.
If you’re a freelancer or contractor, open a personal 401(k). You get all the same tax breaks as a regular employee and you don’t need to be incorporated to do so. If you make money as a 1099 worker, you qualify. Or, open an IRA. The limits are lower but they’re simpler to manage. Millions use them.
Step No. 2: Aim a little higher
Many folks, when they start a 401(k), take their company’s matching minimum to be a goal. Usually that’s 3% of pay. While it’s great to get that “extra” compensation, you should do more. For many, 10 percent is a better choice. Your limit is not a percentage but the dollar maximum, which in 2021 is $19,500 for those under 50.
This is money that comes off the top of your income, so you automatically get the biggest tax bang for the buck by saving as much as you can. Remember, tax rates are progressive; the more you make, the more you pay. Save instead and your effective tax rate — the average of the various percentage brackets that apply to your income — will be lower.
Step No. 3: Running behind? Get the “catch-up” too
If you’re late to the retirement game, the government has got your back. Income earners 50 or older can save an extra $6,500 a year into a 401(k). Like the base amount mentioned in step two, these limits rise annually.
Step No. 4: Invest prudently but with an eye toward longevity
Too often, beginner investors dip their toe into the stock market with great trepidation. Some let cash build up in low-interest money market accounts inside their 401(k), a move which feels “safe” but implies little to no investment growth.
Here’s where a financial advisor can be a huge leg-up. An investment advisor can help you build a diversified portfolio of low-cost funds right for your age and goals. That way, the money you earn today can grow until it’s time for the money to go to work for you.
Step No. 5: Get a real financial plan — in writing
There’s nothing more powerful than putting your dreams and goals down on paper. This can be as simple as sitting down to write a bucket list and as complex as a full-on financial planning exercise with a professional.
A real financial plan takes into account not just your savings and investments but your cost of living, healthcare and your plans for children, charities or both over the decades. A plan connects your money with concrete goals and helps you adjust course as things change.
Retirement planning is nothing less than your first steps toward a new goal — designing a life after work. Once you put your savings plans in motion, momentum takes over and you’re on your way toward creating true retirement security.