Ask around your next family reunion or neighborhood barbecue, and you will discover that many people feel uneasy about retirement. They might doubt they will ever be able to retire, or at least have some serious reservations. You might even be one of these people!
Why are so many American workers feeling apathetic about retirement? There are many factors at play, including the recent downturn in our economy (though we’re on the way back up, and no downturn lasts forever).
Lack of retirement savings. Some people fail to set aside money for retirement, utilizing their company’s 401(k) plan. Others aren’t offered such a plan, but fail to open their own IRA instead. Keep in mind that you earn valuable tax benefits by saving for retirement. Setting aside pre-tax money in your retirement account can lower your overall tax burden, and you might also be eligible for the Saver’s Credit. Open an account and try to fund it, even if you start off with very small contributions. Anything is better than nothing! If your employer offers a company match, try to save at least that much, because your contribution will be doubled.
You got started too late. In your twenties, you were just getting started in your career, and by your thirties you might have been raising children or saving for a house. Many people neglect to save for retirement during these times. The good news is that once you reach age 50, you can make additional catch-up contributions to your retirement plan while reaping even greater tax benefits. Remember to take advantage of this provision once you reach age 50.
You took out a loan from your retirement fund. This is a dangerous idea, and we nearly always recommend against it. If you’ve already made this mistake, do everything you can to pay back that loan as quickly as possible – and don’t do it again. If you don’t pay back the loan, you will have to pay taxes and early withdrawal penalties on the money. In the future, maintain an emergency fund so that you’re never tempted to borrow from yourself.
You saved for college instead. It’s understandable to put your children first, but remember that they will have other ways to pay for college – student loans, work study, grants, and scholarships. You, on the other hand, have only one way to pay retirement: You have to save for it.
You aren’t confident about your Social Security benefits. You shouldn’t rely upon your Social Security benefits to fully fund your retirement, but they are an important part of the equation. Learn the complex rules of Social Security, so that you know how to maximize those checks. The regulations are confusing and tricky, so it can be important to seek professional guidance for this part of retirement planning. Give us a call, and we can answer your questions and show you ways to potentially earn a larger check from Social Security.
Portions of this article have been excerpted from “10 Reasons You Will Never Retire” by Rachel L. Sheedy, Kiplinger.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.