Retirement Savings: What Are Your Real Options?


Are you one of the six in 10 Americans who are behind on their retirement savings? Would you like to know more about the various options? A survey undertaken by TD Ameritrade uncovered some very alarming figures relating to retirement savings. A staggering 50 percent of baby boomers, 75 percent of Gen Xers, and a similar number of millennials claim they’re behind on their retirement plans.

Retirement may be several decades away for you, but that’s no reason not to start making preparations. Retirement comes along quick enough. You want to be able to enjoy your later years, rather than constantly worrying about money and having to balance your checkbook. Having a sizeable nest egg is an excellent way to start your retirement years. You also need to be able to cover the financial cost of long-term care, should it be required.

This quick and easy guide is designed to point you in the right direction and hopefully get you back on track.

Work Out How Much You’re Going to Need

Before you start to worry about how much you should be saving, you first must figure out how much you’re going to need when you retire. It’s not going to be an accurate figure because there are so many variables. However, you should be able to manage a close estimate. Many articles online will help you calculate your retirement savings by age.

Estimate the Length of Your Retirement

The first step is to work out how long your retirement will be. For example, do you plan to retire a few years earlier than the Social Security retirement age? The current average retirement age is 62. Perhaps you’re planning to keep working until you’re in your 70s and beyond.

The average life expectancy in the U.S. is declining. It currently stands at a little over 78 years of age. Subtract your planned retirement age away from your life expectancy, and you’ll have a figure for how long your retirement will be.

How Much Will You Need to Live On?

The next calculation is your estimated retirement living expenses. Remember to include the cost of your housing, food, insurance, clothing, and entertainment. Many retirees choose to travel, so you might want to factor in the financial cost of that.

To find out how much you’ll need for your retirement years, multiply your predicted annual living costs by the number of retirement years. You’re left with a sizeable figure if you add 3 percent every year for inflation.

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Taxes on Your Retirement Income

When it comes to retirement, expect your retirement income needs to be lower. After all, you won’t be paying Social Security or Medicare taxes or saving money in a 401(k) or IRA.

The amount you pay depends on the source of your taxable income. Roth retirement accounts are tax-free. You pay tax on investment income at a rate of between 0 percent and 15 percent. Tax-deferred retirement accounts such as an IRA, 401(k), or 457 plan are liable for tax at rates ranging from 10 percent to 35 percent.

 When you’re looking at the compounded rate of return or the net worth and savings rate of your investments, don’t forget to take into account the tax you must pay. Tax brackets are also something to bear in mind.   

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It’s Never Too Early to Start Saving for Retirement

If you need $50,000 to live on, and you plan to enjoy 30 retirement years, you’re going to need a staggering $2.4 million. Before you start panicking, you’re not going to have to find it all yourself because Social Security contributes some. Nevertheless, you must save more than a million, possibly much more.

With such a considerable sum of money to save, it’s never too early to start saving. The earlier, the better. The longer you give yourself to save enough money, and the longer it has to grow, the more you’ll benefit from a compounding rate of return.

Start straight away with as much as your budget allows, and you should be able to increase your savings over time.

Don’t Rely on Social Security Payments to Cover the Cost of Your Retirement Years.

Being able to enjoy a secure and comfortable retirement is everyone’s dream. Ninety-six percent of American workers receive coverage under Social Security, according to the Social Security Administration. To qualify for retirement benefits, you must collect a specific number of credits. You earn credits when you work. The minimum number of credits required is 40, which equates to 10 years of work.

Social Security calculates your retirement benefit according to how much you earned when you were working. The higher your earnings, the higher your retirement benefits. The earliest possible age at which you can claim these benefits is 62. However, to receive full Social Security benefits, you must be 66 years of age, or 67 if you were born after 1960.

It’s possible to find out how much your benefits are likely to be by using one of the many calculators available on the Social Security Administration’s website. Is it enough to cover the cost of living during your retirement years? The answer is a definite no. The maximum benefit might be increasing year over year, but it’s still considered not enough.

So what are the other options if you want to save more for your retirement?

Retirement Savings

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Retirement Plans Offered by an Employer

If you’re lucky enough to be employed, you have the option of an employer-sponsored retirement plan into which you pay. You can choose from a few different types with pros and cons to each. Selecting the best one depends on the type and size of your employer, and the sector they’re involved in also makes a difference.

Some of the benefits include tax breaks, matched contributions, and having your savings deducted directly from your paycheck. Let’s introduce some of the plans from which you can choose.

Defined-Benefit Plans

This retirement savings plan used to be very common. It’s also known as a traditional retirement plan. However, defined-contribution plans have mostly replaced it. With this particular plan, you receive a specific monthly sum when you retire. You are required to make no contributions. Your employer pays them instead. The amount of money you receive is dependent on your pre-retirement income and how many years of service.

401(k) Plan

Nowadays, this is the most common employer-sponsored retirement plan. It’s also something that often comes with auto-enrollment. Large businesses tend to offer these plans. You’re responsible for the most substantial contributions, while your employer pays a partial amount. You have a certain amount of control over this type of retirement investment. For example, you’re able to choose the investments in which you want to put your funds. You also have complete control over your money when you retire.

Your contributions are tax-deductible, and earnings accumulate on a tax-deferred basis. Withdrawal before retirement is possible, and funds can be rolled over into a traditional IRA or a 401(k) plan of another employer. If you choose not to roll over the funds or transfer them to another plan, they are subject to standard income tax and a 10 percent early withdrawal penalty.

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Roth 401(k) Plan

This type of plan offers the same benefits as a regular Roth IRA. However, your contributions are the same as a regular 401(k) plan. Contributions are not tax-deductible, and earnings accumulate on a tax-deferred basis. As long as you’re 59½ and have been making contributions for at least five years, distributions from the plan are tax-free. Early withdrawals are subject to standard income tax and a 10 percent early withdrawal penalty.

Your employer can offer a partial match of contributions. However, your employer has to place them in a regular 401(k) plan.

Something else to consider with a Roth 401(k) plan is that it’s subject to the IRS-required minimum distribution (RMD) rule. In other words, you must start taking distributions once you reach the age of 70½. This rule applies even if you choose a lump-sum distribution. When you reach this age, you must figure out how the required minimum distributions fit into your retirement strategy. Many plan providers offer access to RMD tables or a calculator, which makes any calculations much more straightforward.  

404(b) Plan

This plan is almost the same as a 401(k) plan. However, it’s designed for non-profit organizations, which is the only difference. This type of plan is best for you if you work in the public school system, a hospital, a home health service agency, a church, a welfare service agency, or an association of churches.

457 Plan

A 457 plan is for state and local government employees and is again almost the same as a 401(k) plan. There is one crucial difference, however. An employer can offer both a 457 plan and a 401(k) plan. You can contribute to both, thereby doubling the limit for a 401(k) plan.


Smaller business owners generally offer this type of plan. You make tax-deductible contributions to the plan, and your employer must make either matching or non-elective contributions. SIMPLE stands for Savings Incentive Match Plan for Employees.

SEP Plan

SEP stands for Simplified Employee Pension. This type of plan is almost the same as an IRA. It’s also simple to administer. Investment, distribution, and rollover requirements are the same as those of a traditional IRA. However, the contribution limits are higher.

Aside from an employer-sponsored retirement plan, you also have the option of saving and investing for your retirement. Let’s now look at a few of the ways you can do it.

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Are You Ready to Start Investing for Your Retirement?

Social Security benefits and employer-sponsored retirement plans are just two of your options. There’s one more we’d like to mention. However, before we look at some ways you can invest in your retirement, consider the following questions.

  • Do you have any high-interest debt you must pay off first?
  • Have you got an emergency fund that’s fully loaded, just in case an unexpected expense comes along?
  • Is there spare money available in your budget?
  • Have you discussed your investment plans with your partner?

Check these items off your to-do list, and you’re ready to go.

Investing in Stocks, and Bonds

Investing in stocks and bonds is one possible option. Low-fee index funds are great if you prefer a less hands-on approach. However, be prepared if you want to be more actively involved in selecting, buying, and selling individual stocks.

Gain an understanding of the basic principles of investing, learn how to read financial statements, and make sure you’ve got the time to follow the markets. A certain amount of math is also required, and you’ll need to learn how to value stocks. Being able to understand the value is crucial if you want to pick out those that are likely to increase in value.

Invest in an IRA

There are two types of IRA in which you can invest. You can open one through any reputable brokerage firm. It’s also possible to open one at a bank, for example, BOFi Federal.  

  • Traditional IRA – An IRA is a retirement savings account that provides certain tax advantages. However, there are limits placed on how much you can contribute each year, and when you can make a withdrawal. The contribution limit for [year] is $6,000. There is a host of investments you can choose with an IRA, for example, mutual funds, individual stocks, bonds, and ETFs.
  • Roth IRA – With this account, you make your contributions using after-tax money. The funds you invest have the potential to grow tax-free while you’re saving. Withdrawals made at retirement time are tax-free, as long as you meet certain conditions.

The Importance of Diversification

To achieve the optimum results for your retirement, you should look to spread your money over a few asset categories. This strategy is known as asset allocation or portfolio diversification. It’s something you should look at continually because, as you all know, the markets change daily. The value of your assets is also going to change.  

Tips to Help You Maximize Your Retirement Savings

Retirement Savings

If you’ve already got a plan in place and have some savings, there are things you can do to improve the results. Here are some tips to help you get a little more tucked away.

1. Automate Your Contributions

To grow your nest egg, you must be consistent with your contributions. One very effective way to do this is to automate them. The simplest way is to have money taken out of your paycheck every month. Another option is to arrange an automatic transfer from your checking account.

2. Include Catch-Up Contributions to Your 401(k) or IRA

If you’re aged 50 or over, it’s possible to contribute more money to your retirement account. Putting a little extra in these accounts can make a substantial difference as your retirement years approach. See if there are any ways you can cut back on your expenses now.

3. Start Making Plans for Your Retirement Today

While saving as much as possible now is vital, understanding how you’re going to make your retirement funds last is equally important. Find out how your Social Security benefits will be affected by your retirement accounts and learn how to roll your accounts over to gain the maximum benefit.

Something else to consider is how you can keep your investments growing at the same time as being able to access the money.  

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4. Cut Your Spending

This tip isn’t the most exciting, but it’s worth mentioning. Spend less now, and you’ll be able to save for retirement. Let’s give you an example that will make you think.

Do you buy yourself a coffee every day, either on the way to work or during your lunch break? Let’s say the cost of that coffee is $5. Add that up over one week, and it comes to $25, which doesn’t sound like too much. Add that up over one month, and $100 still doesn’t seem an enormous amount. If you buy yourself a coffee every working day for the whole of your career (40 years), that’s $150,000 you could have put away for retirement. That doesn’t even take into account inflation, but it adds up.

Think of all the other little expenses that could add up to a sizeable amount, and you’ll soon be looking for ways to cut costs. Let’s give you a few more cost-cutting examples.

  • Pay for purchases using money rather than using a credit card.
  • Force yourself to delay making purchases for 24 hours, so you’ve got time to consider whether you need them.
  • Introduce no spending days.
  • Use discount codes and coupons.
  • Never go grocery shopping when you’re feeling hungry.
  • Use a list and stick to it.
  • Unsubscribe from email newsletters and catalogs.
  • Cancel your unused subscriptions.
  • Plan lots of free activities.
  • Take the bus and leave your car at home.
  • Carpool to work or use rideshare services such as Uber, Lyft, and ZipCar.
  • Consolidate your loans.
  • Install LED or CFL light bulbs.
  • Install a programmable thermostat.
  • Unplug electrical devices when not in use.
  • Use timers and power strips.
  • Cancel club memberships.
  • Reduce your cable bill.
  • Lower your cell phone bill.

These are just a few of the ways you can cut your expenditures. A bonus for some of them is that you’ll also be doing your bit for saving the planet.

Have you reached your retirement years yet? Do you have any further tips for our readers? Leave a comment below because real-life experiences are priceless.

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