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It's Not Too Late to Start Saving for Retirement

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By CNNMoney

retirement savings by age worker

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Q. I’m in my late 40s, single, and have no idea of how to prepare for retirement. My employer offers health insurance, but no retirement plan. I don’t want to have to rely just on Social Security. Please help. — Maria, Ohio

A. The fact that you’re getting a late start makes retirement planning more of a challenge. The lack of a 401(k) or similar plan at your job doesn’t help either.

But let’s look on the bright side. You know that you’ve got to start doing something and you seem ready to begin. You also have a good 20 or so years to build a nest egg. So if you get started now — and I mean pronto — you can still dramatically improve your retirement prospects and avoid ending up dependent on Social Security alone after your retire.

Your first move: Open an IRA at a mutual fund company and fund it for the 2012 tax year. That’s right, if you contribute to an IRA before the tax filing deadline of April 15th, you can stipulate that the money count toward the 2012 tax year. The maximum contribution for 2012 is $5,000. (People 50 and older can make an additional $1,000 catch-up contribution). If you can’t sock away the max, do as much as you can.

Unless you think you’ll face a higher tax rate in retirement than you do now — doubtful in your case given that you’re getting a late start with saving — you’re probably better off doing a traditional IRA and taking the tax deduction rather than doing a Roth IRA and foregoing the deduction in return for tax-free distributions down the road.

But don’t get hung up on this issue. What’s most important is that you fund some type of IRA account before April 15th. Besides, you always have the option of converting all or a portion of a traditional IRA to a Roth IRA later on.

Similarly, don’t obsess about how to invest your IRA funds. If you don’t already have a plan for how to build a diversified portfolio, I suggest you just invest in a target-date retirement fund offered by one of the fund companies on our MONEY 70 list of recommended funds. That will give you a fully diversified portfolio of stocks and bonds that will become more conservative as you age.

Once you’ve funded your IRA for 2012, start contributing to your IRA for the 2013 tax year as soon as possible. The maximum for 2013 is $5,500 (plus $1,000 for anyone 50 and older). Getting an early start on your 2013 contribution will not only give your money more time to grow. It will also reduce the chance that you’ll forget to contribute altogether or, if you put it off until the last minute, that you may not have the necessary dough.

Continue feeding your IRA annually and you can end up with …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Do We Need to Be Forced Into Saving for Retirement?

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By CNNMoney

Most Americans are not saving enough for retirement

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(Alamy)

By Kim Clark, CNN Money

Meir Statman, a finance professor at Santa Clara University, is one of the most influential experts in behavioral finance — the study of how your emotions and beliefs affect your decisions surrounding money.

Research in this field has led to a growing number of practices, such as automatic enrollment in 401(k) plans, intended to gently steer you toward smarter choices.
Ultimate Guide to Retirement

In presentations to financial advisers, and in his 2011 book What Investors Really Want, Statman explores how people try to balance the conflicting goals they have for their investments — for example, earning top returns while reducing risk.

Statman, 65, has now started to question some of the behavioral finance dogma that has been the focus of his work. In a new paper, he argues that improving Americans’ retirement security may require something stronger than a polite nudge.

His conversation with MONEY senior writer Kim Clark has been edited.

You’ve studied behavioral finance for more than 30 years, and you’ve seen many efforts to nudge people in the right directions. Do they work?

Nudging is very useful. Lots of people were nudged into saving for retirement by making it automatic and adding automatic escalation of savings.

Fifteen years ago, I might have said that would do the job. I doubt it now, because I see almost two populations: one that can be nudged into retirement savings, and another that is resistant. For them, we need to go beyond nudge into shove, and make retirement savings mandatory. I’m reluctant to shove people. But I think half of us, maybe more, are in a crisis.

So what’s your plan?

It’s similar to a 401(k) except that it is mandatory instead of voluntary. Employers would administer it. For self-employed people, there would be something like the insurance exchanges in the new health care law.

How much would people be required to save?

We should set a relatively low minimum, say 8% of one’s income, satisfying pressing retirement needs. Ideally the level would be closer to 15%. That’s the range in other countries that have created mandatory savings plans, such as Israel and Australia.

This is on top of Social Security?

Precisely. You might ask, “Why not just expand Social Security?” but that is not likely to fly politically, and enacting my proposal would require a new federal law.

Social Security is an insurance plan more than a retirement savings plan. It is fair for us to insure one another against dire poverty and disability. It is unfair, however, to ask us to assure others of a comfortable retirement.

Your plan seems very paternalistic.

People would resent it today, but be grateful later on. God knows, we all can tell stories about stuff our mothers forced us to do that we resented …read more
Source: FULL ARTICLE at DailyFinance