Ten Steps for a Sound and Secure Retirement
3. Save more and save automatically
- Now that you know what you will need, set and stick to a savings plan to build up the capital you require.
- Keep your savings in tax-sheltered accounts: IRAs, 401(k)s, and annuities for maximum compounding effect.
- Invest the maximum annual amounts in your 401(k) and/ IRA
- Give your employer payroll instructions to automatically deduct and transfer these amounts into your 401(k) and/or IRA accounts.
- Give instructions to your 401(k) plan and IRA broker to automatically invest this incoming money into specific mutual funds and indexes.
- Always make your savings and investment efforts automatic before you cash your paycheck!
Develop Your Exit Strategy: An Interview with Ed Slott
, IRA Advisor.
Best-selling author David Bach
shares tips that will help you save more and invest smarter
Behavioral Economist Richard Thaler
Explains His Plan to Help Americans "Save More Tomorrow"
discusses the disparity between the savings rates of blacks and whites
"A Baby Boomer who's watching this show and wants to change their life, the moment this show is over, should double their 401(k) plan." - David Bach
, Founder of Retirement
"There are many people who give up free money. They work where, if they contribute as part of the 401(k) retirement plan, the firm will match their contributions. That is free money. But even then there are people who aren't part of the plan." - Burton Malkiel
, Professor of Economics, Princeton University.
Tools and Resources
- Understand more about 401(k)s and IRA limits at www.todaysseniors.com/pages/401k_Contribution_Limits.html
- Saving more is within your reach. Find easy to understand downloadable guides at www.choosetosave.org/tips/
- "Start Late, Finish Rich: A No-Fail Plan for Achieving Financial Freedom at Any Age" by David Bach
(Broadway Books, ISBN 9780767919470, January 2007)
- Read Richard Thaler
's white paper, Save More Tomorrow
- You Do The Math
: The median value of household assets in 2004 was $172,000 including the value of a primary residence – and the media home value at that time was $160,000 for those who owned a home. (Employee Benefit Research Institute)
- Only four out of 10 American workers actually participate in a 401(k) or any other direct contribution plan at this time;
- More than one out of five who could participate in such plans opt not to;
- More than 90 percent of the workers who do participate in such plans to not contribute the maximum amount.
- Approximately half of all workers draw down and spend their savings from 401(k) and similar plans prematurely when they change jobs;
- Half of all 401(k) plan participants had account balances of less than $19,400 at the close of 2005, the most recent data available;
- Less than half of U.S. companies now offer a 491(k) or similar plan – and only about half – 54% - of all workers actually have access to one. (Bureau of Labor Statistics, National Compensation Survey)
A 401(k) Plan
is a tax-deferred savings plan in which participants typically contribute before-tax income and control how it is invested, choosing maong a variety of different investment funds. Employers may match a percentage of the employee's contributions. Not every employer offers such plans. There are annual limits on the maximum amount of your contributions. Participants incur a 10% penalty if withdrawals are made before age 59-1/2.
is an Individual Retirement Account
, a personal retirement savings account set up by an employed person with annual limitations as to the amount of money he or she can invest. Investment earnings inside an IRA are not taxes until the funds are withdrawn at age 59-1/2 or later. Variants are the Simple IRA and Roth IRA. (See our Retirement Terms and Tools
to learn about these).
Go to Step 4: Invest in disability and life insurance
Go back to main 'Steps' page