I wasn’t as anxious about retirement until the company I used to work for did away with its employee pension plan. When I began working for a new company, I found out that a pension plan was not one of the perks. The company also didn’t offer a match to the 401(k) plan. Even without a company match, I began saving more diligently for retirement using the company-sponsored retirement plan or 401(k). I also began funding my Roth IRA, which I hadn’t touched since the dot-com bubble burst in the late 1990s. After resurrecting my old retirement accounts, I figured out a new budget. According to a recent article by MAINST, saving for retirement with individual contributions is more important than ever. The fact is most of us can’t rely on our companies to provide pensions.
Beating the statistics
The MAINST article cited a National Institute on Retirement Security study that showed the median retirement savings balance is just $3,000 for all age groups. More startling was the fact that people close to retirement only had $12,000 saved. I was able to rollover my old pension into a traditional IRA account, which means the money can grow tax free. When I’m older, I will need to pay income taxes on the deductible contributions and earnings when I withdrawal the money.
Investing in a Roth IRA
Even though I pay the taxes now instead of later on a Roth IRA, it’s important for me to have some tax-free income by the time I retire. Without a pension to bring in additional income, I will have to rely on my traditional 401(k). I want to balance out the taxes I’ll owe on my 401(k) with tax-free income from my Roth IRA. Although I can’t afford to max out my retirement accounts, I funnel all my extra money toward retirement. I also made the switch to a Roth 401(k) as soon as it was offered by my brokerage firm. According to a CNN Money article, the idea of saving “as much as you can” for retirement is too vague. The general rule is to save 10 to 15 percent of one’s income for retirement. I stick to 10 percent so I have money for other purposes.
Saving enough but not too much
When I first amped up my savings for retirement, I went a little overboard. For me, over-saving for retirement meant that I had to tap my retirement account to pay for emergencies or my son’s college tuition. Since then, I’ve been more careful to put money aside in an emergency fund so I don’t have to sell stocks within my Roth IRA. I also stopped being a habitual borrower from my 401(k).
Younger generations are less likely to have pension funds and more likely to experience “pay cuts” in their Social Security benefits. I know it’s not good to just “wing it” when it comes to retirement, but it’s only possible to save as much as I can. So far, saving 10 percent for retirement hasn’t backfired. It seems to be the perfect percentage so that I have enough to pay my bills after paying myself first.
More from this contributor:
Becoming a Roth IRA Millionaire
How I Tricked my Family into Saving
I Refused to Pay off My Husband’s Credit Card Debt