Saving for retirement is complicated, but here's a simplistic breakdown of how much you should have in your 401(k) at each decade in your life.

Social Security benefits will provide a source of income during retirement years, but in most cases, it will not be enough to offset all the necessary retirement expenses of an individual. This is why the structure and performance of your own retirement savings plan areso critically important.

There are four key elements to achieving a successful retirement savings plan.

Even investing a small amount at an early age can be beneficial given the wonders of compounded investment returns.

One potential pitfall is that you are overly conservative when investing your retirement funds. To illustrate, traditional bank savings accounts today offer an interest rate of less than 1 percent. Such a low yield will make it difficult to accumulate adequate retirement savings down the road.

Conversely, investing too aggressively may be disastrous given the extreme volatility of the potential returns. Perhaps a more prudent approach is to invest your retirement funds in a diverse stock index fund where historically, the annual rate of return could exceed 6 percent over a long period of time.

Understand, however, that the stock market will likely experience periods of significant volatility during the life of the portfolio. Therefore, as one is nearing retirement, they should work with their financial planner to optimize their plan, perhaps investing more conservatively to protect the retirement savings from future, additional downward market fluctuations.

One option is to open a traditional Individual Retirement Account (IRA) which currently allows you to save $6,000 a year, or $7,000 if you are 50 or older. The contributions to an IRA may be tax-deductible, depending on your level of income.

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Another option is if your employer allows you to put pretax dollars into a 401(k) account. The maximum contribution to a 401(k) plan in 2019 is $19,000 or $25,000 if you are 50 or older. The beauty of these retirement accounts is that income taxes are not paid until withdrawals are made. As a result, the earnings accumulate tax-free.

An employer might match as much as 50 percent of your annual contribution, so if your contribution is $10,000, they will add $5,000, tax-free.

Let's start with the worst-case scenario and see what we can learn from it.

Let's assume a person wants to retire at age 67, but only starts saving for retirement at age 47. To worsen matters, this person contributes $10,000 into a traditional bank savings account earning 1 percent interest.

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At age 67, there will only be $226,996 in this person's savings account. This could be problematic because the average life expectancies for a 67-year-old male and female in the United States are 16.49 and 18.89 years, respectively. Yet this account will only last 1.51 years if this person's annual retirement expenses are $150,000.

There are three problems in this scenario: 1) this person started too late; 2) the annual rate of return is only 1 percent, and 3) it was put into the savings account using after-tax dollars.

Now let's modify the scenario and see what occurs when this same person starts saving for retirement at age 30. Furthermore, assume this person annually contributes $10,000 into a 401(k) plan that invests in a stock index fund that will generate an average annual rate of return of 6 percent.

Now at age 67, there will be $1,435,403 in the 401(k) account. This time, the savings will last 14.3 years, if the annual retirement expenses are $150,000.

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Let's continue to modify the scenario, assuming the employer will match 50 percent of the contribution. So instead of this person just contributing $10,000 to their 401(k) plan, the total annual contribution will be $15,000, given the employer match of $5,000.

Now at age 67, there would be $2,153,104 in the 401(k) account. This would be enough to cover 33 years of retirement expenses, assuming annual retirement expenses of $150,000.

INSIGHT INVESTMENTS GAUTAM KHANNA: LOW-INTEREST RATES CAN HURT YOU HERE IS WHAT YOU NEED TO KNOW

In the end, it is critical to first take time to determine how much you believe you will need to live comfortably through your retirement years.

You should then strive to create a successful retirement plan by making contributions to a tax-deferred retirement account, if possible, investing as early as possible, trying to generate a reasonable rate of return and if available, taking advantage of plans that allow for employer-matching contributions.

Raymond C. Radigan is head of private trust at TD Wealth. Ray is responsible for managing the trust activity across the TD Bank footprint from Maine to Florida. He oversees the Trust Advisors who bring TD Wealth's full range of investment options to U.S clients to support the management and distribution of their assets. He also oversees the Wealth Strategists, who provide guidance to our clients as they formulate their financial and estate plans.

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Ray Radigan: Retirement strategies that work -- doing these things now could make a $1M-plus difference then - Fox Business

Not contributing to a 401(k) was voted as the worst financial mistake made by Americans.

If you cant remember making a financial mistake then it might be time to get your memory checked. While no one is immune to making inopportune financial decisions, some missteps are a lot more costly than others.

Some mistakes are nearly unavoidable. Think about the Americans who purchased homes at the height of the real estate market boom that preceded the Great Recession. Few people anticipated the financial markets to collapse the way they did in 2008.

However, the mistake most Americans are afraid of making is usually self-inflicted and easily avoidable.

According to a survey by TD Ameritrade, Americans believe that not investing in a 401(k) is the worst financial mistake you can make. Not having an emergency fund was voted number two, while not contributing enough to a 401(k) to get the company match came in at number three.

If one thing is clear, its the importance of the 401(k) in modern retirement planning. Heres what you can do to make sure you take full advantage of your employer-sponsored retirement plan.

But first, lets review what a 401(k) and why its so important.

Lets get started.

Earlier this month, GE announced that it was freezing the pensions of 20,000 employees. As if we needed it, its the latest sign that pension plans are heading toward extinction. Once seen as the Holy Grail of saving for retirement, the pension has been virtually replaced by 401(k) plans.

A 401(k) is an employer-sponsored tax-favored retirement account that you contribute pre-tax wages into. At its most basic level, a 401k is simply an account that you use to save and invest for retirement.

Unlike pensions, you, as the worker, are the steward of your 401(k) investments and contributions. This means that if you dont opt-into a 401(k) plan, you wont be making regular retirement contributions via payroll deductions. In a pension plan, the employees dont participate in the management of those funds.

For many, seeing payroll deductions for social security provides a false sense of relief. In truth, if you are relying on social security to bail you out, youll likely be left wanting more.

The average social security benefit for retired workers in January 2019 was $1,461. For an aged couple both receiving benefits, the figure jumps to $2,448. On an annual basis, thats $17,532 for an individual and $29,376 for a couple.

When you consider that the average household spends $660.25 per month on food alone, it goes without saying that relying solely on social security during retirement will strain most American budgets. Add in the fact that healthcare expenses in retirement are significant, and this leaves very little money, if any, leftover. Definitely not enough for the retirement most people envision, which includes ample travel.

When it comes to your retirement, its important to get a sense for how much you should aim to save on a monthly basis. Use this retirement calculator to get an estimate for your monthly savings goal.

The best thing you can do for your 401(k) is to invest as much as you can. For 2019, employees can contribute up to $19,000. Employees at least 50 years old are eligible for a catch-up contribution of $6,000. Employers can also contribute to employee 401(k) accounts, but there's a $56,000 limit on combined employer and employee contributions. The number jumps to $62,000 if the employee is eligible for a catch-up contribution.

If you arent able to contribute enough to max out your 401(k), always aim to at least contribute enough to get the full company match. Not getting the company match is a big blunder youll want to avoid at all costs.

Once youve elected your contribution amounts, its time to think about your investments. The worlds best money managers recommend investing in a diverse basket of stocks and bonds. Index funds or target date funds are the easiest way to do this, while also keeping fees at a minimum. However, not all index funds are created equal. Last year, Fidelity launched a new index fund with zero fees. The response from Vanguard and other brokerages has been to lower their fees as well. This means there are more low cost investment options than ever.

One hiccup is that your 401(k) plan may not have those low cost funds available. While you are employed at the company and are required to select from pre-selected options, pay close attention to the fees, typically expressed as expense ratios, that different funds charge. Higher fees typically means less money in your pocket. If you switch jobs or leave your employer, make sure you roll your 401(k) into an IRA so that you have complete control over your investment options.

If you want to supercharge your retirement savings, contribute to an IRA or Roth IRA in addition to your 401(k). In total, aim to save and invest 15% of your lifetime earnings in order to have a that retirement youve always wanted.

You owe it to yourself.

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This Is The Biggest Retirement Mistake Americans Are Afraid Of - Forbes

A picture taken on September 17, 2019, shows the logo of U.S. giant General Electric in Belfort, ... [+] France. (Photo by SEBASTIEN BOZON / AFP)

Are pension plan participants being shortchanged when their former employers offer them lump sum buyouts?

The short answer is, It depends.

And this is actually a reversal for me, as Id previously defended companies against those who say theyre cheating their employees.

It turns out to be a bit murkier.

But lets backtrack:

Is your former employer offering to buy out your pension accruals with a lump sum, or offering you the opportunity to start your pension earlier than usual? The lump sum offer has become a preferred method for companies to reduce their pension liabilities, and financial experts have warned repeatedly that this can be a poor decision for participants because the value of a pension goes beyond the dollar amount of the payments made over time. Thats because the actuarially fair calculation the company is required to perform is not the same as what it costs to buy an annuity that protects you against outliving your assets.

At the same time, Ive written in the past that these programs do not cheat employees because employers are required to base their math on actuarially fair assumptions, but employees nonetheless should evaluate their particular situation; in most cases theyre better off keeping the lifetime benefit but there may be some situations (ill health, solid lifetime benefits from another source) in which the lump sum is the right choice. For especially young employees, a rollover to an IRA of money they might otherwise forget about or struggle to find out how to claim at retirement age can be a particular help.

And now Im hearing reports of a new offer employers are making to their former employees: the option to begin their retirement benefits well in advance of the usual benefit commencement date. Why might companies do this? There are some reasons why this would help them with risk management: This can be a first step toward settling liabilities by purchasing annuities with insurance companies, and this will reduce their risk profile by moving more benefits into payout status. And, again, in principle, this is all done on the up-and-up and with actuarially fair calculations.

But theres a loophole. Some companies may be deceiving their employees, or, more neutrally stated, causing them to unknowingly opt out of valuable retirement benefits.

I was passed on a letter sent to a former General Electric employee who was eligible to begin a vested benefit at retirement age, to see how the GE pension buyout looks for an individual participant. The form offered not just a lump sum but, in fact, two new options to eligible employees: in addition to retirement benefits payable at age 60 or 65, participants may elect a lump sum payable immediately or an early pension option in which benefits would also start immediately. In this case, the individual was 53 years old and the monthly benefit offered for starting right away was only 45% of the monthly benefit at age 60. How, my correspondent asked, could the reductions for seven years be so dramatically lower?

The answer was in the fine print:

GE offers a pension with a normal retirement date of 65, and the lump sum value and the early pension option monthly benefit were both based on the actuarial equivalents to the monthly age-65 benefit.

But the plan also contains a provision for what they label an early retirement subsidy in the form of the ability to begin benefits as early as age 60 without any reduction. And the value of this subsidy is not reflected in the lump sum or early pension option calculations. It can only be obtained by waiting until age 60 to begin receiving benefits, and choosing an annuity rather than a lump sum.

Whats more, this benefit is substantial. In this particular employees case, opting for a lump sum early rather than beginning benefits at age 60 would reduce his benefit by about 30%!because the reduction was from 65, rather than 60, to 53.

Now, GE, in its defense, would say that its materials are perfectly clear on this point. They say, in bold print and with underlining, that

This [early retirement] subsidy is not included in the amount in [the lump sum choice] or [the early pension choice], which is based only on your benefit at age 65. If you start your pension before 65 under [the standard retirement provisions], those monthly payments are expected to be worth more than a lump sum or an immediate annuity under [the alternate choices] (assuming average life expectancy).

Is this clear enough for them to have met their ethical duty to treat plan participants fairly? Should they have made it clearer exactly how much money participants who chose the extra-early monthly payment or lump sum option are leaving on the table?

To be clear, GE is not in violation of any law, and participants are not losing any part of their protected age-65 benefit. But those who elect the lump sum do so without knowing (absent additional research on their part) how much additional benefit value they are forgoing.

And GE isnt the only company.

UPS is engaged in another wave of what it calls a Special Pension Payment Offer, in which former participants with vested benefits are able to take lump sum benefits; as with GE, they are not merely offering the lump sums that make the news but also the opportunity to begin retirement benefits early.

How early? An anonymous employee at a UPS employee discussion board posted the offer he received. UPS is offering him the option to elect an early retirement benefit 20 1/2 years early, that is, at the age of 44 1/2. Not surprisingly, his benefit is reduced by a factor of 0.27that is, 73% less than if he had waited until his normal retirement age, and, judging by the conversation on that board, no one is seriously considering taking that level of monthly benefit, and advice is split on whether to roll over the money into an IRA or live for today (which one presumes were largely in jest).

At UPS, there is no general availability of early retirement subsidies, but certain former employees, depending on employee group, are able to retire early after 30 years of service without any reduction in benefits, or receive other forms of early retirement subsidy, according to an SEC filing. I sought clarification from the company as to whether the value of these benefits are reflected in the offers eligible former employees are receiving, or whether, as with the GE former employees, they, too, are forgoing valuable benefits without knowing it; the response I received was a carefully worded nonanswer to the question.

A former employee also shared with me the decision guide being provided to employees. The company does state that

You will be responsible for investing your distribution, which may increase or decrease your income over your lifetime and

If you live beyond your life expectancy assumed in the lump sum calculation, you could end up with less money than if you received a monthly benefit. Alternatively, if you die earlier than assumed in the lump sum calculation, you may receive more under the lump sum option.

Is this sufficiently meaningful information to enable a participant to make an informed choiceespecially when one of those choices is a monthly benefit, but begun at what may be, depending on the participant, a ridiculously early age?

And how many other companies are engaged in the same approach, enabling former employees to unknowingly opt out of early retirement subsidies, and offering early retirement benefits at an age well below what makes any sense for a workers financial well-being?

Again, companies are following the law. But are they acting ethically?

Comments? Experiences to share? Visit JaneTheActuary.com!

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The Hidden Way Employers May Be Shortchanging Employees In Their Pension Lump Sum/Early Retirement Offers - Forbes

Nancy Tengler, Special to USA TODAY Published 7:08 a.m. ET Nov. 2, 2019

USA TODAY personal finance reporter, Janna Herron, explains how changes in the Federal Reserve's interest rates affect your financial accounts. USA TODAY

If you check your 401(k) statement anytime soonyou should feel much better than you did a year ago. Your investments are doing well.

But why?Bad news and uncertainty are everywhere: Trade wars, impeachment, flat corporate earnings and a looming presidential election. Add to that muddy mix a slowdown in global growth and central banks worldwide cutting interest rates to shore up sluggish economies.

Our Federal Reserve is also cutting. Since July, the central bank has trimmed rates three times, bringing the federal funds rate down to a range of 1.5%-1.75%. And that's been good for stocks and bonds. The Standard & Poor's 500 stock index is up over 20% this year and the Bloomberg Barclays US Aggregate Bond Index is up 8.3% year-to-date.

In short, interest rates matter to both bond and stock performance.Look at history. Back in1995, the Fed also cut rates three times. What was the result?Those cuts reignited the economy and generated a cumulative total return for the S&P 500 of 251% over the subsequent five-yearperiod.

Along with Wednesday's announcement of cut to the fed funds rate, Fed Chair Jerome Powell also committed to injecting cash into the central bank's repurchase (repo) facility. That's not a long-term solution, however.(Photo: Wikimedia Commons)

With that encouraging precedent in mind, now's a good time to look over your 401(k) and consider these tips for your stock and bond holdings.

Because 401(k) balances are tax-exempt, you have the luxury of adjusting your investments without worrying about taxes.If a particular fund or asset class has grown to an outsized percentage of your holdings, sell those holdings and reinvest the money elsewhere.By not trimming, you run the risk of riding an investment up and back down. Cashing in on your gains, even if you do it early, is prudent and results in a portfolio that reflects your desired allocation and risk tolerance.

By the time most investors have enough information to make a change to their portfolio, the market has already reacted and it is too late.The fund manager in your chosen 401(k) investment should be analyzing and anticipating and generating excess return for you.If he or she is not (over a reasonable period) pick another fund. Your job is to keep your allocation in line with your risk tolerance.

Whatever you do, dont try to time the market. While tempting, it almost always costs investors total return and generates significant underperformance.Manage your asset allocation to your objectives and remember thatthe beauty of a 401(k) is you are dollar-cost averaging by taking money from your paycheck every two weeks and putting it to work in markets.If you are unwilling to manage your allocations and would rather invest in a target-date fund, that is up to you.But you are surrendering the most important control how much am I comfortable owning in stocks and how much in bonds?

The more engaged you are inmanagingyour money, the better shape you will be in when you finally retire.In the meantime, you can thank the Fed, instead of your lucky stars.So far this year is a doozy.

Nancy Tengler is chief investment strategist at Tengler Wealth Management, ButcherJoseph Asset Management and the author of The Womens Guide to Successful Investing.

If you're an empty nester, make sure you've done these 3 tasks to turbocharge your 401(k). USA TODAY

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The Fed just cut rates again. Here's what you should do next with your 401(k) - USA TODAY

Dear Catey,

I am 43 years old and plan to retire at 62. As a member of Gen X, I already know that Social Security will most likely not be around for me. I plan to retire on $1.2 million in retirement savings. Ive already decided it wont be in the U.S. Where can I live to stretch my retirement dollars? It must have a low cost of living, low health-care costs, low crime and be near a beach. Thank you for your help.

N.W.

Dear N.W.,

Im getting more interest from readers these days about retiring abroad mostly because they feel they can get more bang for their buck outside of the U.S. They often can, but going abroad can have big downsides, sometimes including higher crime, being far from your family and not-so-great health care.

That said, your $1.2 million future nest egg could stretch a lot further in many spots abroad than it would in the U.S. Plus, though you doubt Social Security will be around for you, many experts say that you can, in fact, count on it even if benefits are curtailed somewhat. As MarketWatchs Alessandra Malito recently reported: Many Americans believe Social Security wont exist when they retire theyre wrong. Social Security does face serious challenges, and the payout may decline but the program itself is not going anywhere.

Here are some places that meet most of your criteria, with one caveat: While this is all true today, a lot could change over the next 19 years. Still, I love that youre planning so far ahead. Bravo!

Coronado, Panama

Panama is known as a safe country and ranks in the top 100 (82nd, to be exact) in the world for health-care quality and access, with residents saying Panamanian health care is generally affordable. And Coronado in particular its around 40 miles west of Panama City on the Pacific Ocean is considered a very safe community with a top-notch medical facility, says Suzan Haskins, a senior editor at International Living.

Once a resort town for affluent Panamanians, in recent decades Coronado whose beaches feature black-and-white speckled sand has become popular with expats, who enjoy the golf, shopping and restaurants in the area.

Its also pretty affordable: If you dont live right by the beach, you can get by on under $2,000 a month, with the added bonus of a pensionado visa program that offers a ton of discounts for seniors. One downside is that, because Coronado is a resort town, it can feel hectic at times because of tourism.

George Town, Malaysia

Malaysia snagged the top spot in International Livings rankings of international health care and landed on Investopedias list of the top 10 cheapest and safest countries to retire in. Whats more, George Town itself scored a spot on U.S. News list of the best places to retire in Asia, with that publication noting that it is one of Southeast Asias most livable destinations with low costs, excellent health care and expat perks like the fact that foreigners are welcome and English is widely spoken.

As for those beaches youre dreaming of, U.S. News points out that almost on the citys doorstep are stylish seaside settlements with palm-fringed sandy beaches and a backdrop of lush rainforest. Youll also enjoy great food, interesting architecture (one section of the city is a Unesco World Heritage site) and a fun arts scene. However, itll be a long flight youll often spend more than a day traveling to come back and visit stateside friends and family.

Mrida, Mexico

Affordable and culturally rich, Mrida which I recently recommended to a woman who was hoping to retire near the beach in Mexico on under $1,200 a month seems to meet most of your requirements, too.

Though its not right on the beach, its just 25 miles from the famed sugar-sand beaches of the Yucatns Gulf Coast (its hard to beat those beaches in terms of natural beauty) and Mrida, which has a population of upward of 800,000, has the added benefit of offering great food, plenty of events to entertain you and a thriving expat community. Dan Prescher, the senior editor at International Living, points out that health care here costs a fraction of what youd pay in the U.S. and many of the doctors went to medical school in America and speak English.

Though it might not be the safest place on this list (the U.S. Department of State puts the Yucatn Peninsula as a whole at a Level 2, which connotes the suggestion that Americans traveling there exercise increased caution), Mrida itself is known as one of the safest cities in Mexico, and people generally say they feel safe living here. For my money, Mrida, the capital of Yucatn State in Mexico, has it all when it comes to affordability, low crime, and access to great health care, Prescher says.

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Ill retire at 62 with $1.2 million and want to live in an affordable, safe place near the beach where should I look? - MarketWatch

Retirement is one of the few goals shared by nearly everyone. While most get there in the end, many find that this new era of supposed freedom comes with increasing financial constraints. Hopefully, you can afford to cover at least your basic living expenses in retirement, but thousands of Americans fall short of this goal, either because they cannot save as much as they should or because they underestimate the true costs of their retirement.

Median retirement savings for American workers sit at around $50,000, according to a recent Transamerica study. The Bureau of Labor Statistics reports that the average household headed by an adult 65 or older will spend this in nearly one year. If we assume this average spending with adjustments for inflation over a 30-year retirement, it's not unreasonable to think retirement could cost $1.5 million to $2 million or more. This can seem an impossible goal for those sitting with $50,000 or less in their retirement accounts right now, but with a few of the strategies below, it just might be possible.

Image source: Getty Images.

No matter how much money you have saved for retirement, your first step is the same as anyone else's: Create a detailed retirement plan. Start by estimating the length of your retirement by subtracting your preferred retirement age from your estimated life expectancy. One in three 65-year-olds today can expect to live past 90 and one in seven will live past 95, according to the Social Security Administration so, to be safe, plan for a long life.

Total up your average estimated costs in retirement. Start with basic expenses first, like food, housing, and healthcare. Then, you can allot some extra money for travel and entertainment if you choose. Multiply your estimated annual retirement expenses by the number of years of your retirement, adding 3% annually for inflation. This is your total estimated retirement cost, but you don't have to save this all on your own.

Unless you're stashing all your retirement savings in a savings account (which I would advise against), your money's probably going to grow over time. Depending on how you invest your money, it's possible to see a 7% to 8% annual rate of return over time. But you should use a 5% to 6% rate of return when calculating your investment growth, so your plans aren't derailed if your money doesn't grow as quickly as you'd expected. A retirement calculator will do this math for you and it can also factor in inflation for you, too. The final step is to subtract any free money you expect for retirement (more on that below) to figure out how much you must save on your own.

Social Security will be there for you when you retire, whether that's this year or in a few decades, and it can give you hundreds of thousands of dollars over the course of your retirement. This can go a long way toward reducing the retirement burden on you, but you need to understand the role you play in the size of your checks so you don't accidentally cost yourself benefits.

Your checks are based on your average monthly earnings during your 35 highest-earning years with adjustments for inflation. If you haven't worked for at least 35 years, you'll have to factor in some zeroes, which will weigh down your average, and if you've worked less than 10 years, you won't be eligible for Social Security at all.

The age you begin taking benefits also affects the size of your checks. If you want your full benefit, you must wait until your full retirement age (FRA) -- currently 66 or 67, depending on your birth year. You can begin as early as 62, but then you'll only get 70% of your scheduled benefit per check if your FRA is 67 or 75% if your FRA is 66. Delaying benefits past your FRA will increase benefits until you hit the maximum at 70. This is 124% of your scheduled benefit per check for an FRA of 67 or 132% for an FRA of 66.

Your employer might also offer free money toward your retirement in the form of a pension or 401(k) match. Always take advantage of any 401(k) match available to you unless you need all your income for basic living expenses. Try some of the tips below to lower your expenditures if this is the case. Watch out for your company's vesting schedule, too. This indicates when employer-matched funds are yours to keep and leaving before you're fully vested could cost you some or all of your 401(k) match.

Lowering your expenses today can free up more money to put toward your retirement savings. There are many approaches to doing this, including canceling services you no longer use, limiting discretionary spending, downsizing your home, or paying off debt. Take every penny you're saving and put it toward your retirement.

If you continue these money-saving strategies into retirement, you might also end up reducing the cost of your retirement. Cutting back on travel in retirement or delaying retirement by a few months or years can also help you narrow the gap between what you have and what you need. Delaying retirement is especially effective because it gives you more time to save while reducing the number of years your savings has to last.

In addition to lowering your expenses, look for ways to increase the money you have coming in. This might mean starting a side business or pursuing promotions at your existing job. This will help you by boosting the cash you have available for retirement as well as your average monthly earnings used to calculate your Social Security benefits.

Stay mindful of the retirement contribution limits every year. You may not need to max them out, though you can if you'd like. But avoid overcontributing because you'll incur a 6% penalty on the excess for every year it remains in your account.

You're allowed to contribute up to $6,000 to an IRA in 2019 and $19,000 to a 401(k). Adults 50 and older are allowed an additional $1,000 and $6,000, respectively, in catch-up contributions. These limits change periodically, so you may be able to contribute more in the coming years than you can today.

If you stick with the above strategies, you will definitely notice an increase in your retirement savings over time. Whether that's enough to cover your dream retirement depends on when you started, the lifestyle you want, and how much time you have until you exit the workforce. But a comfortable retirement where you don't have to worry about being able to afford basic living expenses could well be within reach.

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Median Retirement Savings Are Worryingly Low: Here's What You Can Do About It - The Motley Fool

What are you willing to give up now to save for retirement? Principal asked this question of its retirement plan participants who fall into the super saver category those who saved 90% to 100% of the 402(g) IRS max contributions or had a deferral percentage of 15% or higher in 2018.

Last updated: Nov. 1, 2019

The Principal survey found that among super savers, 43% drive older vehicles, 41% own modest homes and 41% travel less than they prefer. Another common sacrifice made by the savers is taking a DIY approach to projects and repairs, with 40% saying they opt to do things themselves instead of hiring outside help.

Just because youre focused on saving for retirement doesnt mean you have to live without little luxuries. Among super savers, 46% subscribed to Netflix, Hulu and other subscription entertainment services; 46% still splurged on travel and 39% said they dine out more than once or twice a week. As for making a daily Starbucks or Dunkin run, only 20% of super savers said they splurged on coffee on the go.

To find out what you should actually give up and whats OK to splurge on GOBankingRates asked financial experts what sacrifices people should be willing to make to save for the future. Here are the expenses they say you should cut out ASAP.

Although financial experts are divided over the issue of giving up your daily latte to save for future costs, some are firm believers that every little bit does count.

You should be willing to give up [having] coffee at the coffee shop instead of at home, said Ed Snyder, president and co-founder at Oaktree Financial Advisors, Inc., who views this expense as an extra. You only need what you need. People today have a difficult time understanding the difference between needs and wants.

Snyder explained why he believes giving up small things like coffee shop drinks, going out to eat regularly and shopping for things you dont need is worth it in the long run.

One dollar of expenses forgone today will grow to $7.60 in 30 years at [a] 7% [return rate], he said. For every dollar you waste today you are costing yourself almost $8 in retirement. Put another way, if these extra things cost you $100 a week, [thats] $5,200 a year. That would grow to over $38,000 at retirement.

You can certainly treat yourself every once in a while, but unnecessary luxuries shouldnt be a regular part of your spending.

Some of my clients get two to three massages per month, said Delano Saporu, founder and financial advisor at New Street Advisors Group. For someone still in a wealth-building phase, letting go of some higher-priced luxuries and supplementing with other items like a low-cost gym membership that has a spa might be a better answer.

Forty-three percent of super savers said they have driven older vehicles to save for retirement this is the most common sacrifice super savers have made to save. Craig Kirsner, author, speaker and president at Stuart Estate Planning Wealth Advisors,believes that this is a smart sacrifice to make.

After the first 12 months of ownership, you can lose more than 20% of the cars value due to depreciation. If you buy a two-year-old car with an extended warranty, you save 30% to 40%; over a lifetime that can add up to having substantially more retirement assets at age 65, Kirsner said.

Not only should you buy used cars, but you should also drive them for longer, saidMark Wilson, founder and president at MILE Wealth Management.

Extending your car ownership from five years to seven years will free up a lot of cash for retirement savings, he said. Lets say your average car payment is $400 a month. If you can go two extra years without that car payment and you stash away those funds for those extra years, that frees up $9,600 towards your nest egg.

If your family has two cars, Holly Andrews, managing director at KIS Finance, recommends getting rid of one to cut auto expenses in half.

The cost of running a car is very expensive when you take fuel, insurance, tax and maintenance into consideration, she said. Work out what the second car would have cost you over the course of the year and save that amount [for retirement].

Andrews acknowledges that this sacrifice might take some adjustment, but the long-term payoff could be worth it.

You will need to sit down and work out who needs to use the car when and for what purposes, and you may need to look into public [transportation] or carpools, but if this is a sacrifice you can make, it will save you a lot of money.

After driving an older car, owning a modest home was the most common sacrifice super savers made to save for retirement, the Principal survey found.

The easiest way to lower your expenses and save more for retirement is to buy a cheaper house, said David Ruedi, financial advisor and vice president at Ruedi Wealth Management. If you buy the biggest house you can afford, the mortgage will eat up most of your income. Frugal home purchases are one-time decisions that will significantly improve your cash flow forever, and will leave room for retirement saving and discretionary spending in other areas.

Ruedi also notes that if you buy a large house, the satisfaction of owning that home wears off quickly.

Research shows that people take their materialistic purchases for granted after some time passes, so youre not actually sacrificing your current happiness by cutting back, he said. If anything, a frugal home purchase will enhance your current happiness because youll have the peace of mind that comes from knowing youre in good financial shape.

When you get an unexpected bonus, your first instinct is probably to spend it on a splurge you wouldnt normally pay for. However,Jamie Hopkins, director of retirement research atCarson Group, said its important to change this mindset to save for retirement. He believes the key to retirement planning is to automate your contributions.

This means implementing strategies like sending bonus monies straight toward retirement and setting up automatic 401(k) contributions at work, said Hopkins. The more we can automate our savings the better off we are because we do not feel the pain of losing out on short-term consumption today. If every time I think about saving for retirement I have to make a conscious decision to forgo a current need, it will be much more difficult.

Nickolas R. Strain, senior wealth advisor and wealth advisory committee chair atHalbert Hargrove,said you dont need to go cold turkey and give up all splurges, but it is important to cut back on these expenses when you can.

Find little ways to save a little more money, he said. Go on vacation, but dont go on an international trip go within the U.S. where youll save on airfare.

If you save $200 a month on travel, youd save $2,400 per year, which would add up to $60,000 over a 25-year period before interest.

These kinds of sacrifices are doable for most people, said Strain.

Among super savers, not traveling as much as I prefer was tied with owning a modest home as the second-most common sacrifice they made in order to save for retirement.

Leslie H. Tayne, founder and head attorney at debt solutions law firm Tayne Law Group, said that buying something or doing something because of fear of missing out can wreck your retirement savings goals.

Whether youre over your fun budget, you catch yourself falling prey to the latest fashion ad or youre feeling the pressure to go out and spend all weekend, learn when to cut yourself off and just say no,' she said. Sometimes you just cant do it all, and saying no could be the best thing you did.

Among super savers, 15% reported that they told their friends and/or family no to common expenditures in order to save for retirement.

Although nearly half of the super savers surveyed by Principal said they splurged on entertainment subscriptions,Thanasi Panagiotakopoulos, principal and founder of LifeManaged, said you should be selective about the number of subscriptions youre signed up for and cut any that you can live without.

This day and age it is very easy to get signed up [for many] subscriptions because they are only $14.99 per month Netflix, Amazon, Spotify, gym memberships, food delivery services, apps on Apple devices, iCloud storage, etc., he said.

Panagiotakopoulos said you should take the time to think about each subscription and whether or not you are really using it.

For example, How often do you actually go to your gym? Is it part of your daily routine or do you just walk with your spouse and go on hikes? he said. [This is a] perfect example [of a suscription] that can be eliminated while still enjoying today.

One of the best ways to save money is to avoid spending money wherever you can, saidRyan Guina, founder of The Military Walletand Cash Money Life.

Bringing your lunch to work instead of eating out is one of the easiest ways to avoid spending money, he said. Finding those chances to save money and put it towards your retirement will make you a winner in the retirement game.

Its important to have a social life, but going out drinking can be an expensive habit.

If you get a drink with friends once a month, that can be as much as $100 per night totaling $1,200 in a year, saidChane Steiner, CEO ofCrediful. By cutting out this habit and putting that money in a savings account, you can add significantly to retirement.And it doesnt have to be that you never do these things, but they should be splurges, not regular events.

Get Help With Saving: 14 Completely Free, Easy-To-Use Budget Templates

The Principal survey found that40% of super savers opt to do DIY projects themselves instead of hiring outside help and 37% dont have a housecleaner. Andrews said that this is a good move to make to save more for retirement.

Having a housecleaner or getting your car valeted are luxuries in life and things that you could sacrifice if you really want to make a difference to your retirement savings, she said. Anything that you can do yourself, you shouldnt pay somebody else to do. If you have friends or family with certain skills, consider trading and doing things for each other for free.

Opting for store brands could save you a lot in the long term, said Andrews.

When it comes to grocery shopping, it can be very easy to get stuck in the habit of buying the same products and brands over and over again, she said. However, if you are prepared to do a little bit of experimenting and research, you could probably cut your shopping bill in half by sacrificing your premium brands for those that are half the price, but just as good.

Taking a cab or Uber might be faster than taking the bus or train, but its much more expensive.

Little things like taking a cab when public transport is just as easy or eating out five or more nights a week can add up over the course of the year, said Caleb Silver, editor-in-chief of Investopedia. While its nice to be able to treat yourself every now and then, just cutting those two splurges in half could save you $1,000 or more every year, which is just $83.33 a month. But $1,000 invested in the stock market over 10 years, assuming a 5% average annual return, turns into $1,629 in 10 years. Thats the magic ofcompound interest, and it only costs you $83.33 a month.

If youre not quite ready to buy a house but have enough money to rent your own place, living alone is certainly an appealing option. However, Logan Allec,CPA and owner of personal financesiteMoney Done Right, said that extra rent money is better off going into a retirement fund.

Many of us default to living in a nice place or getting rid of roommates as quickly as possible.While it does wonders for your quality of life, it does serious damage to your wallet, he said. Roommates can certainly be annoying, but they save you thousands of dollars per year.

Designer clothes and shoes are unnecessary luxuries. The money you save from buying lesser brands can be easily funneled into retirement savings instead.

Designer clothing may cost hundreds if not thousands of dollars for a single item, saidRobertGauvreau, CPA and founding partner ofGauvreau& Associates CPA. There are great designer-like options available that could substitute for these purchases, and can save you a significant amount.

Before swiping your credit card (or inputting your credit card number online), make sure your purchase is something thats actually within your budget. Spending above your means will put you into debt, and with the high-interest rates on credit cards, its hard to get out of it.

So many people make excessive purchases on their credit cards that they cant currently afford, forcing them into paying interest on a balance they cant pay off, said Gauvreau.With interest rates in excess of 20% annually, you can quickly put yourself in a costly situation where you are in debt and cant find a way out.

Jill Bradley, a Louisville, Kentucky-based financial advisor with Wells Fargo Advisors, said cutting back on expensive salon services like manicures, pedicures and hair coloring can make a big difference when it comes to retirement savings.

Consider less frequent visits to the nail salon women can spend thousands on this annually and not realize it, she said. As for hair color, Bradley said, To stretch the time between visits to the hair salon, purchase a box of root touch-up color and in 15 minutes, you can delay your salon visit another week or two.

One very important reason to save now and spend later is the time value of money,' saidGauvreau. The time value of money is the idea that money available now is worth more than the same amount in the future due to its potential earning capacity. This means that if you save and invest your money now, you will accumulate greater wealth and retirement savings due to earning investment income and continuing to invest and earn money off of these investments. Thus, saving now and spending later will allow us to create greater retirement savings that can ensure we are prepared for our retirement when that day arrives.

And once you reach that day, your future financial health is going to be completely reliant on your past behaviors.

Keep this in mind the next time you want to splurge on something: You can borrow money to put your kids through college, but you cannot borrow money for retirement, said Bradley. You must have saved those funds yourself over the years. This is precisely why you should get into the practice of saving for retirement versus splurging on unnecessary things.

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This article originally appeared on GOBankingRates.com: 19 Things Youll Need To Sacrifice Now for a Healthy Retirement

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19 Things Youll Need To Sacrifice Now for a Healthy Retirement - Yahoo Finance

What would a stock market crashed during your retirement years do your finances?

While few retirees or soon-to-be retirees ever stop to ask that question, they shouldunless their equity exposure is so low that a crash wouldnt materially impact their retirement financial plan. So for this column, Im using the 32nd anniversary of the 1987 crashwhich was officially celebrated on Oct. 19to ask the question for you.

Many dismiss the 1987 crash, the worst in U.S. stock market history, as a one-off eventwith no historical relevance. They furthermore add that, even if the market were otherwise wanting to crash, government safeguards that were put in place in recent years would prevent it from doing so. As you will see, I will argue that both of these arguments are wrong.

In making that bold assertion, I rely heavily on a study conducted a number of years ago called Institutional Investors and Stock Market Volatility, by Xavier Gabaix, a finance professor at Harvard University, and three scientists at Boston Universitys Center for Polymer Studies: H. Eugene Stanley; Parameswaran Gopikrishnan, and Vasiliki Plerou. They came up with a formula that predicts the frequency of stock market crashes over long periods of time.

Ill get to their formula in a minute, but notice thatif theyre rightcrashes are inevitable. We therefore are kidding ourselves if we think crashes are one-off events that will never reappear.

To appreciate what the professors found, imagine yourself retiring at age 65 with a life expectancy of 30 years. Using their formula, we can calculate the likelihood of a market crash during your retirement.

The accompanying chart reports the probabilities. Of course, the bigger the crash the lower the probability. But the odds of a huge crash are still high enough that you should expect at least one, and perhaps more, during your retirement.

Consider first a 15% daily drop which, at current levels for the Dow Jones Industrial Average DJIA, +1.11%, translates to a daily decline of around 4,000 points. According to the professors formula, theres a 67% chance that such a drop will occur at some point over your 30-year retirement.

Note carefully that this doesnt mean crashes of this magnitude occur like clockwork every so many years. The formula instead predicts what their average frequency will be over long periods. So its possible that you will see no 15% crash during your retirementor suffer through more than one. But for planning purposes you are on shaky ground if you have arranged your retirement finances on the assumption that such a crash will not occur.

What impact would a 15% daily drop in your stockholdings have on your retirement finances? Theres no one answer, of course, since it depends on the equity exposure of your portfolio and whether you have the flexibility to alter your spending when your portfolio loses significant value.

But the biggest impact of such a drop could very well be psychological, prompting some skittish retirees to go to cash. That could have terrible long-term consequences, of course, since the longer term performance of other asset classes is dismal. In the case of many segments of the bond market, for example, the expected return is negative in inflation-adjusted terms. So getting rid of equities could very well lead to a big drop in retirement spending.

The chart also shows the expected number of smaller crashes. Over the next 30 years, according to the professors formula, you should expect 18 daily drops of at least 5% equivalent to a drop of more than 1,300 Dow points. Thats a little more than one a year. (Over the last 30 years, its interesting to note, there have been 15 such daily dropsslightly lower than the formulas prediction but still remarkably close.)

Many of my clients, when presented with this data, insist that regulations and safeguards instituted by the government and stock exchanges will prevent crashes from occurring in the future. The researchers believe they are kidding themselves.

Thats because of why crashes occur in the first place, according to Professor Gabaix. They take place, he explained to me in an interview, because there inevitably will be occasions when, for any of a number reasons, large institutional investors will simultaneously want to get out of stocks. And when they want to get out, they will find ways of doing so.

Thats because the markets are globally interconnected and U.S. regulations are largely powerless to restrict sales outside the U.S. Take circuit breakers, trading halts and the like, for example. However effective they might be on U.S. exchanges, and many have serious doubts that they are, they in any case will be powerless to prevent the sales of U.S. stocks that are listed on foreign exchanges or via the short sale of stock-index futures contracts or options.

The bottom line? Retirees and soon-to-be retirees need to face squarely not just the possibility, but the probability, of one or more stock market crashes during their retirement years. This realization should in itself be a source of solace, so that you arent surprised when one does occur.

Furthermore, if you are the kind of investor who would be so psychologically scarred by a crash that you would want to go to cash if one did occur, then you should alter your retirement financial plan now so as to reduce and/or hedge your equity exposure.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. Hulbert can be reached at mark@hulbertratings.com.

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What are the odds the market will crash during your retirement years? - MarketWatch

Actor Tony Goldwyn said, "people are pretty chill and respectful on Twitter." And that may be true -- unless those people are millennials discussing retirement. A quick browse of tweets containing #millennialretirementplans reveals anything but a chill mindset. What you will find is a mix of sarcastic and anxiety-ridden predictions like "Work until you are death's door" and "The millennial retirement plan is dying."

A 2019 Wells Fargo retirement study reflects the same attitude. The study indicates that only 13% of millennials expect to rely on Social Security benefits as their primary income in retirement. In the study, 45% of millennials said they planned to rely on a 401(k) or an IRA as their primary source for paying retirement expenses. And without a Social Security cushion or a big savings balance, millennials don't see a clear path to retirement. In fact, just 55% of millennials said they are saving enough for retirement, according to the study. The remaining 45% are left, well, freaking out.

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Chances are, you don't love the idea of working indefinitely. But there is some good news. If you have a few decades left in the workforce, you can use that time to your advantage. And the bad news? You face tough choices today to secure those golden years tomorrow. Here's where to start.

In the simplest terms, the time value of money means that $1 today is worth more than $1 a year from now. The reason it's worth more is that you can invest that $1 and earn interest on it for the next 365 days.

Let's say you have $1,000. You decide to invest that cash in a fund earning 5%. After a year, you'll have earned $50, and your balance will be $1,050. After another year, assuming consistent earnings, you'll be sitting on $1,102 plus some change. The fun part is that $50 you earned in the first year is now earning interest too. Run this math out for 20 years and your nest egg grows to $2,653.30, without adding any more money to the pot. This is called compounding and it's the magic that makes investing work.

What if you forgo saving for a year, instead spending your $1,000 on a luxurious vacation? This hits you in three ways. First, you use your cash. Second, you miss an opportunity to earn an easy $50. And lastly, you miss out on the potential to earn 20 years of interest on that $50.

And debt works the opposite way. By charging living expenses to a high-interest credit card, you are tying up your future funds to pay off that primary debt plus the interest it racks up. This is part of why debt can get out of control quickly.

The takeaway is this: Save early and save often. It's just easier.

If monitoring your spending is among your least favorite things to do, you're not alone. Studies show that millennials make $411 in unbudgeted purchases each month. While that's not ideal, it is a potential goldmine for your retirement savings plan.

Set aside some free time to review your bank statements for the last two months. Highlight any purchases that were non-essentials, as these will point you to savings opportunities. Perhaps you could skip every other Food Truck Friday or take one fewer weekend trip every six months. Redirect that cash into your savings or investment account, and get it earning for you now.

There are plenty of budgeting apps to help get you started tracking your expenses.

It's also important to take a realistic look at your future income potential. If you're on a great career track at work and expect raises going forward, you'll have an easier time stashing money away. You should plan on increasing your savings deposits every time you get a raise.

But if your future income potential is less certain, it's crucial to be disciplined about your savings today. You might think about skipping Food Truck Fridays altogether or picking up a side gig on to pad your savings account.

If you have access to an employer-sponsored plan like a 401(k), make the most of it. Usually, the money you contribute to your 401(k) is both automatic and pre-tax -- meaning the money is taken straight from your paycheck and you don't pay income or payroll taxes on those contributions. Unless it's a Roth 401(k), you also aren't taxed on the earnings in the account until retirement.

Your regular, automatic deposits into the 401(k) will grow to a nice sum over 20 years. But you can earn even more by maxing out any employer-match. Employer-matching means your employer puts money in your account based on your own contribution activity. Some employers will match your contributions up to a certain percentage of your salary, and others will match up to a specific dollar amount. Either way, it's free money. Make it work for you by contributing at least enough to your 401(k) to max out those employer contributions. If you don't get your full match, you're leaving free money on the table.

Don't let those gloomy #millennialretirementplans tweets get you down. You have time on your side, and the sooner you start saving for retirement, the more fruitful the process will be.

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Freaking Out About Retirement? Do These 4 Things Now - Motley Fool

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Think people want government out of their lives? Heres a counterexample: Most Americans want the government to force them to save and to force employers to provide a retirement plan. The polling behind this view is so clear that I dont know why more politicians arent talking about it.

Part of the growing mountain of evidence that Americans want retirement mandates is the regular Natixis Investment Managers survey of retirement plan participants. Over half of those surveyed53%said it is the government's responsibility to provide universal access to a retirement savings plans. And 54% believe personal retirement plan contributions should be mandatory. Three-quarters of these workers want big government to force employers to provide pensions.

I am not surprised mandates are so popular. We are headed for a retirement disaster. Over half of Americans workers have no retirement plans and most will get to retirement with nothing but Social Security.

Workers seem to know they are in trouble and want the government to force them to save. One possible reason is that 401(k)-type plans are prone to early withdrawals that erode savings. A Natixis survey in 2015 found that more than a third of respondents admitted taking money out of their accounts before retirement and almost half took the money out when they changed jobs. A mandate helps preserve retirement security.

Surveys are not the only kind of evidence that suggests Americans want savings mandates.First, Social Security is a well-beloved government program. It is also a big government saving mandate. Proposals to expand Social Security are very popular among people of all ages and both political parties.

Second, when workers are unionizedand thus have a chance to tell employers how they want to be paidthey choose to have employers force them to divert cash wages to insurance and retirement plans. Union members rates of coverage in pension plans are three to six times higher than other workers.

Third, identifying as a saver helps form a positive identity. According to Gallup, Americans view themselves as being fiscally prudent: 59% say they view themselves as the type of person who enjoys saving more than spending. Another survey found that Americans understood the importance of savings, yet had significant stress over their ability to save. Fifty-one percent responded that saving money was their biggest cause of financial stress.

Fourth, psychologists show that certainty about having a stream of income for life diminishes anxiety and enhances well-being.

Fifth, additional polling suggests savings mandates in the U.S. would be popular. A global survey from 2006 found that, when given the choice, respondents in almost all of the 20 countries surveyed chose enforcement of additional private savings. Respondents chose mandates over options like increasing the retirement age, reducing pensions, and raising taxes.

Younger Americans especially appreciate mandates. The 2016 Natixis poll showed that 69% of Millennials, compared to 55% of Baby Boomers, believe individuals should be required to contribute toward retirement savings. And 82% of Millennials, compared to 77% of Generation X members, agree that employers should have to offer retirement plans.

This is no surprise. We give hardly anything to youth but they do have time. Young people would benefit most from mandates because a smallish contribution yields big returnsthe power of compound interest over time.A 30-year-old can save 5% of her income for 40 years to yield the same retirement replacement rate at 65 as does a 50 year-old saving over half of their income.

It is time for employers and policymakers to take action to help improve the odds that American workers are able to reach their retirement goals. Thankfully, U.S. policymakers have examples to look to abroad.

In the Melbourne Mercer Global Pension Index, a recent survey of global pension funds, the ones that came out best had mandated plans: Denmark and the Netherlands. Australias Superannuation program and New Zealands Kiwi Saver both require employer and employee contributions. Australia, Finland, Sweden, Norway, Canada, Switzerland, and Germany also ranked above the U.S.

It is no surprise the U.S. often does worse than Western Europe. But other countries that do better than the U.S. include Singapore, Ireland and Chile (the latter of which is currently witnessing massive protests over its pension system, among other issues). Why do so many countries beat the U.S.? You guessed it. Most of these nations have a mandatory second tier after a pay-as-you-go Social Security system. Many also have robust occupational pensions.

In short, we know what needs to be done, and we know that its popular. The only question is when policymakers will take the baton.

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Americans Want The Government To Force Them To Save - Forbes