We are three months into the new year. Are your 2011 savings goals on track? You, like many others, have most likely set at least one financial resolution or goal you hope to achieve this year. And like many others, you might have excuses for why you haven’t begun working on those goals.
Let’s look at some popular excuses and most importantly, reasons for you to squash your excuses for saving for retirement:
- Excuse #1: I’m too young. This is one of the best reasons to save now! For one, time is on your side. The younger you start the more time you will have to save. For two, you might qualify for tax savings through the Saver’s Credit (aka Retirement Savings Contributions Credit), a tax credit to low-to-middle income workers age 18 or older who have contributed to an employer-sponsored retirement plan or IRA in the past year and meet the IRS’s adjusted gross income requirements.
- Excuse #2: I’m too old. Waiting until you’re in your 50s or 60s to save for retirement is not ideal, but Uncle Sam has features to help give you a leg up. If your retirement plan allows it, you could make age 50 catch-up contributions, which lets you to save an additional $5,500 to your 457 or 401(k) plan. Add this to the 2010 annual contribution limit of $16,500 and you could save $22,000. If you have an IRA, you can add another $1,000 to your IRA contribution limit of $5,000 to save a total of $6,000. Also, if you’re in a 457 plan, there is a “pre-retirement” catch-up provision that allows you contribute up to another $16,500 for a total of $33,000 (when added to the $16,500 annual contribution amount) for a period of three years immediately preceding your declared normal retirement age (see your HR department to determine what this is for your retirement plan). This allows you to make up for years in which you did not contribute the maximum that you were eligible to contribute under your current employer’s 457 plan. But no double-dipping allowed — you cannot use both types of catch-up provisions in the same calendar year.
- Excuse #3: I don’t have enough money to begin saving. The important thing is to start saving, no matter how small the amount, and to save regularly. Your employer-sponsored plan 457 or 401 plan is often the best starting point since your contributions to these tax-deferred plans may reduce your taxable income. And if your employer offers a match, some of which went away during the market downturn, it’s typically a good rule to use the match amount (or percentage) as a guide for the amount you should begin contributing.
- Excuse #4: I don’t understand how it all works. Start with your HR department. They will have the information you need to know about your employer’s retirement plan and how to start saving within the plan. Their retirement plan provider should also have educational resources to help you.
- Excuse #5: Social Security will cover me. Don’t bank on it! As this CNN Money article states and as the Social Security Administration projects in this news release, retirement benefits are projected to be exhausted in 2037. This is a moving target and there have been talks about raising the normal retirement age from 67 to 69, but the future of all this is uncertain.
What excuses are you making for not saving for retirement? Whatever they are, squash them and start saving!
Do you have a strategy for saving that you’d like to share? Send in your comments and share it with me.
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