It's Never too Early to Save for Retirement

IT'S NEVER TOO EARLY TO SAVE FOR - RETIREMENT Millions of Americans are in danger of not having enough money to maintain their current standard of living in retirement. One estimate projects that 52% of households fall short. How is this possible and what can you do to avoid it? WHERE YOUR RETIREMENT MONEY COMES FROM These are the general buckets that make up the U.S. retirement system. Employer- Sponsored Asset Personal Individual Gov't Social Income Savings Retirement Employee Security Account Plans Pensions Although virtually all Americans receive Social Security in retirement, its maximum benefit is $2,685 a month (if you retire at age 66 in 2015).2 Common Types of Retirement Options, Defined Pension "A type of retirement plan, usually tax exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee's future benefit. The pool of funds is then invested on the employee's behalf, allowing the employee to receive benefits upon retirement." 3 401(k) An employer-sponsored retirement savings plan where the employer may make contributions on a percentage of an employee's earnings and where the employee can make pre-tax contributions up to a percentage of earnings. Investments grow tax-deferred until withdrawn. Roth 401(k) Taxes are paid upfront and contributions are not tax-deductible; withdrawals are tax-free. Traditional IRA A personal account where contributions may be tax deductible; investments grow tax-deferred until there is a withdrawal. Roth IRA Taxes are paid upfront and contributions are not tax-deductible; withdrawals are tax-free. WHY ARE WE FALLING SHORT? Retirement needs have actually grown significantly in recent decades. Rise in Full Increase in Retirement Age to 67 YEARS OLD Life Expectancy for people who were born in Increase in 1960 or later Healthcare Costs The retirement landscape continues to evolve from defined benefit plans (pensions) to defined contribution plans, such as 401(k)s. WHAT ARE AMERICANS' CURRENT RETIREMENT SAVINGS HABITS? PERCENTAGE WITH NO RETIREMENT SAVINGS, BY AGE 18-29 50.5% 30-44 27.8% 45-59 23% 60+ 15.4% Overall 30.9% Roughly 31% of Americans have no retirement savings. SAVINGS WITH NO RETIREMENT PLAN 73% of those without a retirement plan, such as an IRA or 401(k) 73% have less than $1,000 in savings and investments. SMALL CHANGES CAN REAP GREAT REWARDS Saving is a way of life, but for some it can be hard to save when you can't see the immediate benefit of doing so (but you can see the item in your shopping cart delivered to your doorstep in two days). ENTER THE POWER OF COMPOUND INTEREST Suppose you go out to lunch Monday-Friday and spend $10 each time. $10 $10 $10 $10 $10 SUN MON TUE WED THU FRI SAT Being prudent you $100 $20 open a retirement account and initially deposit $100 (your principal) drop two of your lunch outings and put that extra $20 a week into your retirement savings account. If you have 40 years before retirement $100 + $20 / wk over 40 yrs at 5% annual return, compounded 1x yr you have $126,340.60 saved. And that's just from not spending an extra $20 a week on eating out for lunch! This is just a small portion of your overall retirement needs, but it's easy to see how making several small changes can add up to large savings over time. Here are a few more scenarios: $100 + $10 / wk over 40 yrs at 5% annual return, compounded 1x yr = $63,515.05 $100 + $20 / wk over 20 yrs at 5% annual return, compounded 1x yr = $34,655.24 $100 + $10 / wk over 20 yrs at 5% annual return, compounded 1x yr = $17,458.30 Want to try a few scenarios of your own? Check out the Investor.gov Compound Interest Calculator at: http://www.investor.gov/tools/calculators/compound-interest-calculator AND NOW YOU KNOW – NOW IS THE TIME TO START Make a list of retirement goals Determine your income needs Assess & reassess your income sources every year And of course SAVE Get in touch with an investment or financial professional & start making a custom plan of your own. For help, visit: http://www.finra.org/Investors/SmartInvesting/GettingStarted/SelectingInvestmentProfessional/ project : invested SOURCES 'Center for Retirement Research at Boston College, page 1 http://crr.bc.edu/wp-content/uploads/2014/12/IB_14-20-508.pdf 2Social Security Administration https://faq.ssa.gov/link/portal/34011/34019/Article/3735/What-is-the-maximum-Social-Security-retirement-benefit-payable Investopedia http://www.investopedia.com/terms/p/pensionplan.asp "Center for American Progress https://www.americanprogress.org/issues/economy/report/2015/01/26/105394/the-reality-of-the-retirement-crisis/ SFederal Reserve, page 27 http://www.federalreserve.gov/econresdata/2013-report-economic-well-being-us-households-201407.pdf SEBRI, page 1 http://www.ebri.org/pdf/briefspdf/ebri_ib_397_mar14.rcs.pdf 7Investor.gov investor.gov/tools/calculators/compound-interest-calculator