Most of us understand the importance of saving for retirement. Why is it then that so many Americans find it so hard to do?
Like the national debt, the total consumer debt in the U.S. has passed $15 trillion. In addition to carrying debt, American consumers also face a lack of savings. Currently more than 50 percent of our country's population has less than $25,000 in total savings, including both retirement and regular savings.
Some of my previous blogs have discussed tax-deferred savings for retirement, but this blog will look at savings with both pre-tax and after-tax dollars.
The simplest way to start is to open a savings, money market or checking account at your local bank and begin each month with a deposit. I know this sounds basic; however, many people run into trouble when they don't have enough cash on hand. A good strategy is to continue to contribute to your account until you have three to six months worth of expenses saved. This is not the most efficient savings method, but when the economy is suffering, I always live by the saying “cash is king.”
Your next step might be adding to your retirement savings. If your employer has a retirement plan, check to see if they match employee contributions. If they do, put away only the amount that equals the employer’s match. This matched money comes at no cost to you and should never be turned down.
If after this contribution you are able to save more, then you can open a self-directed IRA or Roth instead of contributing extra pre-tax dollars to your employer-sponsored plan. This allows you to pick the type of investment and a particular plan that matches your goals and your tolerance for risk. I would recommend a Roth, for reasons discussed in my earlier blog.
Should emergencies arise, you can still access your Roth contributions for pre-retirement needs. While the Roth's distributions are tax free, don't get carried away because you can only access your contributions, not your earnings, prior to retirement.
While there are many options for us to save money, the most important strategy might be just getting started. Once you have decided to take the first step, consider meeting with a qualified financial adviser or investment adviser for more detailed advice. If you do, be sure to ask questions, and don't proceed until what they say makes sense to you.
Joe Wirbick is president of Lancaster financial services firm Sequinox and specializes in retirement planning and distribution. This allows him to concentrate on developing strategies that help address the unique issues that confront retirees and those approaching retirement.