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I cannot tell you how many times I have been asked the same questions, or variations of the same questions, calling for answers I believe most working Americans want: who, when, why and how do I start saving for retirement? For most, our first exposure to retirement planning starts early in our careers by participating in an at-work retirement account. In the long run, retirement vehicles are meant to be supplemental to Social Security, pensions and other sources of income.

According to a 2020 study by Statista, 50% of surveyed employees had investments or savings in an employer-sponsored plan.  That leaves the other half of Americans in the workforce doing their best to figure out how to generate income in retirement. Despite the lack of information or knowledge, the access to vehicles and tools for planning has never been greater. Do-it-yourselfers have thousands of tools, paid or free, that can help them crunch the numbers. Other individuals are more comfortable with hiring a financial advisor to do all of the planning.

The fundamentals are the same regardless of your preference, but we all need a starting point. Here are some answers to who needs to save for retirement, when to save for retirement, why to save for retirement and how to get started:

Who needs to save for retirement? The short answer is: everyone. Regardless of your current level of income or assets, there is an essential need to create a plan. An individual with access to millions of dollars could lose everything without proper legal, tax and investment planning. Moreover, the person who saved their entire life working low paying jobs could sufficiently support themselves with the right planning. Based on a 2019 report by EBRI, 40% of households between the ages of 35 and 64 are projected to come up short on money during retirement. Saving the right amount of money and spending the right amount of money are equally important as during retirement.


When should I save for retirement? If you haven’t already started, the time to begin is now. It’s never too late to save for retirement, but the longer you wait, the smaller of a nest egg you’ll have. Most of this comes from the power of compound interest, or the eighth wonder of the word according to Albert Einstein. Compound interest allows an investment to grow over time. The growth not only comes from money being deposited or the initial principal, but from earnings accumulated in the account. Here is an example of three savers who start saving at three different ages:

Jill takes her first job at 22 and contributes $5,000 per year for 43 years, until age 65. She is projected to have an ending balance just over $1.6 million in a traditional IRA or $1.4 million in a Roth IRA.

Joe, on the other hand, saves the same amount of money, with the same rate of return but delays his savings for 10 years. He is projected to have an ending balance of $729,753 in a traditional IRA and $620,290 in a Roth IRA.

Finally, Erin starts 10 years after Joe and 20 years after Jill. She is projected to have about $304,000 in a Roth IRA and almost $259,000 in a traditional IRA.

As you can tell, time is of the essence. The sooner you get started, the better off you’ll be in the long run.


Why should I save for retirement? Saving for retirement allows you to create financial independence. It could also keep you from being a burden on children and other family members. Tax savings from using a qualified account today allow us to control our taxes today, which is important because tomorrow might be a tipping point for someone. Another great reason to take your retirement into your own hands is the questionable stability of Social Security benefits. According to current estimates, the Social Security Trust Fund is expected to run out of money by 2034. Whether future benefits are cut, the retirement age is moved back, or taxes go up, what you see on your Social Security statement may not be your actual benefit. The Social Security trust fund is very unlikely to be completely broke, as contributions come from payroll taxes, but I would not bet my future on one single source of income.


How should I start saving for retirement? One of the parts I enjoy most about the work we do is helping individuals and families learn about saving for retirement. Saving for retirement does not mean you have to put half of your paycheck away each month. Some financial experts will want you to save 15% to 20% of your income right off the bat. I am sure this does not apply to every pre-retiree, but most of us could not go from saving between 1% and 5% to between 15% and 20% overnight. We have rent, mortgages, utilities and day-to-day expenses to cover. To start your retirement-saving plan off on the right foot, make sure you consider some of these basic tips.

  1. Make sure you are receiving 100% of your employer’s 401(k) or other retirement plan match.

Some employers will require you to put money into your retirement account before they match your contribution. Why? Mostly because they want to see commitment from the employee to save for their future.

  1. Consolidate old retirement accounts and contribute

Many of our clients have old 401(k) or other retirement accounts at various institutions. Not only do these investments require the same level of attention as other accounts, but the smaller balances can quickly dilute due to ongoing maintenance fees. Once those accounts are consolidated, consider converting traditional IRA balances to Roth and setting up automatic contributions. Start with a small contribution of $25 per month and work your way up to larger and more frequent contributions.

  1. Open a brokerage account

Set up a brokerage account at a discount broker that has no minimums, such as TD Ameritrade, Charles Schwab or Fidelity, and systematically buy investments via checking account deductions. Make sure to look for commission-free ETFs or mutual funds if you decide to go this route.

  1. Make catch up contributions

If you’re over the age of 50, you started late and it’s within your budget, use the catch-up contributions allowed by the IRS. 401(k) and similar retirement plans will allow you and additional $6,000 per year, while IRAs allow an additional $1,000 and Health Savings Account (HSA) will allow an extra $1,000 after age 55.

  1. Consider delaying Social Security

Individuals approaching the age of early retirement may want to consider waiting until their full retirement age of 70 to collect social security. The rule of thumb is that for every year you delay Social Security from early retirement to age 70, you realize an 8% increase in lifetime payouts.


The information provided covers a broad spectrum of strategies and is not meant as specific advice. Make sure you contact your tax and financial professional and, of course, do your proper due diligence. Until next time!