BOISE, Idaho — There’s a big concern surrounding retired Americans who may be struggling financially, especially with rising costs and inflation.
A lot of people say they have a retirement plan in place; however, financial experts say those plans aren’t always as well thought out as people believe.
One issue that Matt Frankel, certified financial planner and contributing analyst at The Motley Fool, says is common is that people aren’t always aware that social security is only designed to provide 40% of your pre-retirement income, meaning you’d need close to twice that amount saved to maintain your current lifestyle level in retirement.
To get ahead and prepare for a comfortable retirement, Frankel advises saving 10% of your pre-tax income, not including any employer contributions.
“A lot of people make that mistake and say, 'Well, my employers contribute 5% of my salary, so I can contribute another five and that’s plenty,' and in reality, that’s usually not enough,” said Frankel.
And yes, Frankel admits that saving 10% of your income can be intimidating for some people, but there are ways to save and not stress over your current day-to-day expenses. For starters, you can increase your contribution rate by 1% of your salary each year until you reach your target.
“Or every time you get a raise,” Frankel adds, “increase your contribution rate to a level that’s about half of your raise. So your salary is still going up, your take-home pay is still going up, and you won’t even notice the difference and your retirement will grow simultaneously.”
Older generations, like baby boomers had pensions, but now there’s more of a reliance on having a 401k, so it’s not a bad idea to consider saving with both an IRA and a 401k for retirement.
“Most people can take advantage of, say, a Roth IRAfor some tax-free retirement income, in addition to their 401k, especially if you’re interested in maybe having a little more control over your investment options in your retirement account.”
Another option is a health savings accountoffered by your employer since those roll over year-to-year and get invested. Frankel says that after age 65 you can use it for whatever you want, and it essentially becomes its own retirement account.
“In the meantime, if you need the money for healthcare expenses, it has a triple tax advantage that is really rare in any type of investment,” Frankel said. “You get a deduction if you contribute and your contributions are tax-deductible. They get invested and those investments grow on a tax-free basis, and then if you take out your money for health expenses you don’t pay a dime of tax, no matter how much your money has grown.”
