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Conquer Your Retirement Fears

January 14, 2016 at 12:00 AM

I don’t know about you, but if I see or hear of one more survey about how panicked most Americans are about their retirement, I will scream. That we have a national fear of retirement preparedness is abundantly clear. What we need now are less surveys and more advice on how to conquer retirement fears. Here are my key steps to start down your road to retirement financial freedom.

1. Grab an employer match. If you have a workplace retirement plan and it offers a matching contribution, you are to make sure you are contributing enough to get the maximum match. Amazingly, an estimated one quarter of retirement plan participants don’t contribute enough to get the maximum match. Note: If your plan offers a Roth 401(k)—I highly recommend you use that type of account over a Traditional 401(k).

2. Focus on a Roth IRA. If you don’t have a company plan with a match, make a Roth IRA your savings focus. And if you do have a match, make sure you contribute enough to get that max match, and then focus on a Roth IRA.

I imagine you may have heard me extoll my love of Roths before, but just in case: this is an incredibly great way to build retirement security. In retirement your withdrawals will be 100% tax free and you’re under no IRS obligation to make a withdrawal if you don’t need to. That’s a lot different than a Traditional IRA: all withdrawals are taxed as ordinary income, and the IRS insists you make withdrawals once you turn 70 1/2.

And while I want to be very clear that the very best move is to not touch your retirement savings during your working years, I want you to understand that every penny you contribute to a Roth IRA can be withdrawn at any age—next month, next year, or five years from now--with no tax or penalty. It’s just the earnings on your contributions that you can’t touch without paying tax and potentially an early withdrawal penalty.

3. Invest for the long haul. Even if you are in your 50s, there’s a strong possibility you will still be alive in your 80s, and beyond. So while it does make sense to become less aggressive in your investments as you age, you don’t want to become too conservative. If your savings are sitting in a bank account or very short term bonds earning less than the rate of inflation, you could be in a pickle 20 or 30 or more years from now, as the cost of living will have increased more than your savings grew. Keeping some of your retirement portfolio invested in stocks gives you the best shot at earning inflation-besting returns over the long run.

4. Save automatically. Whether it’s through payroll deduction or an automatic monthly transfer from your checking account to your Roth account at a discount brokerage, take this off of your To Do List by making it automatic.

Your goal should be to save at least 10% of your annual salary. If you haven’t saved a penny, you may find ramping up to a 10% savings rate daunting. I get it. But I encourage you to try it for six months, and challenge yourself to see where you can cut spending to make a 10% retirement savings rate achievable. If 10% is out of the question from the get-go that’s fine. Start at 5%, and then increase your savings rate at least one percentage point a year. Or accept my challenge: add one percentage point to your savings rate every six months. That will get you to 10% -or more, I hope!-in just a few years.

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