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Here are some scary facts on American retirement.
- 36% of Americans said they don’t contribute anything to retirement savings , like a 401(k) or a IRA.
- 35% of Americans over the age of 65 rely almost totally on Social Security alone.
- 55% of American workers have less than $2000 saved for retirement.
- Starting this year, social security fund outflow exceeds the total inflow from payroll taxes.
Now, here are 20 steps you should take today to secure your future. First let me introduce you to the terminologies, in case you need.
Retirement Saving Terminology
Rollover: Thisis the term used for funds that an employee and employer have accumulated and have options to be transferred when the employee leaves the job.
Split Rollover assets:These are assets following a divorce. The assets from an IRA or Roth IRA fund may be split and put into another qualified trust by the recipient.
Qualified plan or trust: One that has been approved for tax exemption by the IRS
Rollover withdrawal: Is when you elect to withdraw funds that you have accumulated.
IRA: Individual retirement account
Roth IRA: Roth was the Congressman who made the amendments to the standard individual retirement plan
Definition of IRA
If you are a US employee and your company has a 401 k IRA plan, you have the option to enroll in it. This gives the employer the right to make a contribution to a 401k plan, provided the employee permits an equal deduction from their salary. The combined amounts must be paid into a qualified trust. These combined amounts are sheltered from tax When the employee leaves the job, for whatever reason, the money in the trust fund allows for a cash withdrawal from the age of 59 ½. It also enables the plan to be moved to another qualified investment or possibly leave it where it is. Here’s a guide to 401(k) vs. IRA, should you rollover?
Definition of a Roth IRA
Contributions are not tax deductible but when the investor makes a withdrawal at retirement age (min 59 ½ years) all proceeds are completely tax free. There’s no age restriction on withdrawing contributions, however, if you are under 59 ½ you will pay penalties if you withdraw any of the profits from investments. There are restrictions on who is eligible for a Roth IRA: A person submitting as a single cannot earn more than $95,000 per year. A married couple cannot earn more than $150,000 per year.
20 Do’s and Don’ts for Retirement Saving
- Work out how much you will need to maintain an acceptable lifestyle when you retire.
- Save as much as you can. here are some ways to save.
- Contribute to your employer’s retirement plan (401k), at least that much where you can take 100% employer match, if any.
- Consider whether an IRA or a Roth IRA would be best for you.
- Find out if you will benefit from your spouse’s or legal partner’s pension plan.
- Find out details about your employer’s benefit plan, scan the benefit documents.
- If your employer doesn’t have a plan, ask if they would set one up
- Find out all you can about where you can deposit your savings, including the benefits and risks involved. Create a balance by mixing high risk investments with moderate to low risk investments
- Do not make withdrawals from your plan before retirement age as you may lose tax advantages or have to pay penalties
- Find out what Social Security benefits you will be entitled to, post retirement.
- Max out all retirement saving contribution, if you can, specially if you have started late.
- If you leave a job where you have made contributions to an IRA plan, you can transfer funds to another qualified plan, tax free, if you abide by the plan’s rules. However, some options could land you with a tax bill, penalties and administration costs.So read the conditions carefully
- You can normally transfer your IRA funds to your spouse / legal partner when leaving your employment but you must adhere to the conditions of your plan to prevent a penalty being imposed by the IRS.
- If you are divorced your retirement assets may be divided between your spouse or legal partner and you
- If you are the person receiving a divorce split rollover assets, you must put them into an IRA in your name, within 60 days to avoid taxes and penalties
- It doesn’t usually affect your plan if you move it whilst the stock market is rising or falling, as it’s the longer term impact of the stock market that impacts on growth. Losses you have incurred through market downturns are not usually deductible in your tax return due to the tax free shelter that you already have
- When you transfer your funds to another qualified account ensure that you find out the administration charges and what investments the company going to make on your behalf.
- You have 60 days to decide where you want to move your rollover fund to. If you take longer you will be subject to IRS penalties
- When your plan allows you to withdraw money. You will have the options of either taking a larger lump sum with a smaller pension, a smaller lump sum with a larger pension or in some cases leaving your plan where it is until you are ready to withdraw.
- If you do elect to take a larger lump sum make sure that you don’t unwittingly move yourself into a higher tax band.
Readers, what other measures you consider important and not mentioned here? And, are you contributing to retirement saving?
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I have to say SB those numbers are scary. I started giving life to my portfolio again and after 3 months I am happy I did. It’s a slow process but as I look back I realize that I will get to where I want by discipline.
They are scary Jai. Isn’t your wife having the retirement plan from her work?
I just started saving for retirement about a month ago (counting actual savings, not the $2,000 I hastily stuffed into an rsp last year with no real plan in mind) Like Jai, I agree, those numbers are scary! While I know that anything could happen in the next few years, I may have to draw from my savings or maybe I won’t be able to contribute… I’m happy that I’ve made a start, I’m thinking about my retirement and my future. How common are employer matched 401k? I wish I had one!
I guess you’re self employed. Actually 401(k) match is not common. For big employers, they are there. But for small scale companies you don’t really get one.
Andrea, they are only super common with BIG employers — most of my friends who have company jobs have matched 401k/403b retirement, but for the rest of us? SAVE IT your own self! Terrifying.
Yes for those who don’t have employer match, still you can go ahead with your contribution alone in 401(k). After all IRA and Roth IRA are there for everybody. Agreed employer match is free money but, even without free money there are options to build up wealth.
Those numbers are terrifying. Sadly, I believe they are also true!
We are in our early thirties and most of our friends/relatives are too busy upgrading their lifestyles on credit to worry about saving for retirement. I seriously worry about the future of this country. Who is going to take care of these people?
Actually, nobody, I think they’ll have to work till they drop. Glad you are not one of them
Great tips SB. 401(k) participation has been going down for employers with the new economy. It’s time employers take some responsibility. Skimping on 401(k) is not going to cut it. When the economy really picks up I suspect a herd of employees running for the door.
Yes retirement benefit is one of the very important perk one should look for. This can be the deciding factor while choosing between comparable jobs.
I definitely agree that the best advice is to start saving today. I’d even take it a step further and say start saving yesterday. It is that important and you can technically do it with IRAs if it is before April 15th 🙂
well said! This is one thing that can determine your life style when you grow old.
In my opinion, there are two practices that are critical for retirement. The first is to save a portion of every dollar we earn as salary or any other reason (fees, royalties, dividends, etc..). Without a clear culture of saving, never succeed in having a proper withdrawal amount. 2. – Invest adequately those savings. – We must understand clearly that yields 3% a year, will not be sufficient to constitute a retirement fund large enough. We have the obligation to engage staff (spend a little of our time) on our investments. Diversified mutual funds are no longer an alternative. We must find yields of about 8% annually and that is possible.
Do not forget that the population lives more and more years (and therefore need a bigger retirement fund) and government (including social security) will have less and less money available.
What is more important? Saving money or paying off debt?
@Jacko
Paying off debt. Debt in most situations accrues interest, it’s better to pay it off quickly than to save a minor amount.
Though if both can be done simultaneously you’re golden.
Gold Bureau actually want to transfer a regular
or Roth IRA with a precious metal IRA which is a lot simpler.
However, investing in gold along with other precious metals takes knowledge and a plan.
With a Roth IRA you might be typically (with many exceptions)
not taxed if you withdrawal the money for retirement nevertheless, you also receive no tax deduction when
leading to your Roth IRA. In the other alternative, you could
receive the rate because gold which was invested. I am certain that they
will have all of it covered inside contract in a few vague way.
Why was it ok to move your IRA the first time but not the second time.
The right part would be to consider an individual retirement account which is self directed, giving you complete power over it.
Buy gold coins or consider the gold investments area.