Don't Let The Media Scare You About Your Retirement

No matter what you read or what your situation, you have chance to catch up.

​Marketwatch had a post the other day that noted the extent to which we are collectively overconfident about our retirement prospects while at the same time, woefully undersaved. Here was the key data point; "43% of workers 55 and older have less than $100,000 in savings and investments, and just 38% have $250,000 or more."

Robo advisor WealthFront had a blog post that opined a 401k will not be enough. It laid out a scenario where a couple would collect collect $4900/mo from Social Security and $5800/mo from a 401k that has presumably been rolled over into an IRA but that would still not be enough to get by.

With a lot of these scenarios coming up short simply means that something will have to give. If you really need $12,000/mo and are only going to have $10,700 then either you need to work longer, spend less, have some sort of income beyond your portfolio or figure out some other compromise.

In saying that a 401k won't be enough, WealthFront is of course making a pitch for its services and yes, if you can contribute to other vehicles in addition to a 401k you will be better off.

The standard advice is that you should put in enough to your 401k to get the maximum benefit out of the employer match. Not doing so is giving up free money. If the most you can get from a match while making a $100,000 salary is $3000, that is 3% of your salary, turning it down won't usually make sense. 401k plans have their drawbacks, they tend to be expensive and often the choices are not great. If you are pretty disciplined with saving money then only contributing enough to get the match is best and then put other savings into other vehicles.

If this sort of discipline is challenging for you, maybe just put as much as you can into your 401k and don't worry about other vehicles. Dr. Richard Thaler won the Nobel Price in economics for his work on the importance of automated savings like this, you never see the money, it goes to your 401k automatically.

After a 401k the next vehicle to fund would be an HSA. As I said a couple of months ago the best advice for almost everyone will be to fund a 401k up to getting the maximum match and then funding and HSA. Click through to read why.

I would urge you to fully explore a Roth IRA as well. Many companies offer a Roth 401k too. The difference is that with a traditional IRA/401k you get a tax deduction on the way in and pay taxes on the way out. The Roth equivalents are taxed on the way in (no deduction) but are tax free on the way out. While the deduction on the way in is great, you'll be thrilled not having to pay taxes on some withdrawals. If you need $20,000 for a car you'd actually have to take out $25,000, pay $5000 in taxes to net $20,000. With required minimum distributions, the government will get their pound of flesh but having to pay 20% more for a purchase will be a perpetual bummer if you have no Roth assets.

To the Marketwatch and WealthFront articles, we all have obstacles to our retirement planning, whether we have a lot or a little saved we could always have more, not every bounce of the ball (market performance analogy) will go our way, there will be the occasional large expenditure that has to be paid for (we just had a $4300 car repair bill), the slightly more frequent less large expenditure like a vet bill and so on.

All of these steps; accumulation, life planning, strategies for building an income (SS, retirement accounts, job) and everything else are challenges to solve/obstacles to overcome. The flexibility you have and the more options you give yourself, the less daunting the challenges/obstacles will be.

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