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Everyone hopes for a comfortable retirement, but most people aren’t doing enough to make it possible.

A 2018 study found that 1 in 3 Americans have less than $5,000 in retirement savings and 46% percent have taken no steps to prepare for the likelihood that they could outlive their savings (source).

Although most people are not doing enough, retirement savings doesn’t have to be complicated. If you’re looking to get your retirement savings on track, here are 5 simple steps that you can follow.

Step 1: Establish an Emergency Fund

Although it may not be directly related to your retirement savings, having some emergency savings is an important step. Unexpected things can and will happen, and unfortunately, they can be quite costly.

You may need to tap into emergency savings in the event of a sudden job loss, major health issue to someone in the family, or unexpected repair or expense.

Without an emergency fund, your savings can be derailed and any progress that you’ve made will be halted or even undone.

When that unexpected medical bill comes, without an emergency fund, your retirement savings may be the first thing to be sacrificed.

Most experts suggest that you should have enough money in an emergency fund to cover at least 3-6 months of living expenses, but your personal or family situation can impact your needs.

Single-income families will be at greater risk compared to a dual-income family. Those with unpredictable incomes, like the self-employed, will also be at greater risk compared to salaried employees. If you fall into the higher risk areas, it’s a good idea to have a larger emergency fund.

Your emergency fund should be kept where it can be easily and quickly accessed, and without any financial penalty. A savings account or a money market account is a common choice. An internet bank like CIT Bank that offers high-yield savings and money market accounts is a good option.

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Step 2: Evaluate Your Options

There are several different retirement accounts or plans that you can use, but not all of them will be an option for everyone. You’ll need to evaluate your own situation to see which types of accounts are available, and determine which ones make the most sense for you to prioritize.

The accounts listed below do not cover all of the possible options, but these are some of the most popular and most common types of retirement accounts.

401(k) or 403(b)

The 401(k) is probably the most common type of retirement account, with 79% of American workers having access to one (source). In order to have access to a 401(k), it will need to be offered by your employer.

A 403(b) plan is very similar to a 401(k), except that 403(b)s are offered by non-profit organizations, schools, and government organizations.

As an employee, you may have access to either a 401(k) or a 403(b), but your employer will not offer access to both. You’ll have access to whatever is offered by your employer, as long as you meet the qualifications (part-time employees are sometimes not eligible).

There are a few major advantages to investing in a 401(k) or 403(b):

Contributions are pre-tax and will reduce your taxable income Your investment will grow tax-free until it is withdrawn Many employers will match your contribution (up to a maximum percentage)

The combination of reducing your taxable income and getting the match from an employer make the 401(k) or 403(b) a very attractive way to save and invest for retirement.

For 2019, the maximum contribution allowed to a 401(k) or 403(b) is $19,000. An additional $6,000 of catch up contributions is allowed for those who are 50 years old or over.

Traditional IRA

Unlike the 401(k) or 403(b), you’re not dependent on your employer to have access to an individual retirement account (Roth or Traditional). Anyone can open an IRA and there are many different types of investments that can be held within an IRA.

Contributions to a traditional IRA are made pre-tax (with some limitations – more on that in a minute), so they will reduce your taxable income. The amount in your traditional IRA is not taxed until it is distributed, just like a 401(k).

In 2019, you can contribute up to $6,000 total in all of your Traditional and Roth IRAs, or up to the amount of your income if your income for the year is less than $6,000.

If you are 50 years old or over, you can contribute up to $7,000 in 2019.

While anyone can contribute to a Traditional IRA, contributions will not be tax deductible if your income is over a certain limit. The limits below are based on modified adjusted gross income (MAGI):

Single individuals with income over $137,000 cannot make tax-deductible contributions.

Single individuals with income between $122,000 and $137,000 can make a partial contribution that is deductible.

Married couples filing jointly with income over $203,000 cannot make tax-deductible contributions.

Married couples filing jointly with income between $193,00 and $203,000 can make a partial contribution that is deductible.

Roth IRA

A Roth IRA is another type of account that has some significant benefits. Contributions to a Roth IRA, unlike contributions to a 401(k) or a Traditional IRA, are post-tax, which means they will not reduce your taxable income. However, the growth and future withdrawals are not taxed, as long as you follow the guidelines.

Although the short-term tax benefit of 401(k) and Traditional IRA contributions are nice, there are some very convincing reasons to consider a Roth IRA:

Paying tax now means that you’ll pay less in taxes overall, since you won’t be taxed on the growth or when the money is withdrawn.

Delaying tax payments (like you are doing with a 401(k) or traditional IRA) means that you may be paying taxes at a higher rate if tax rates increase between now and the time you withdraw from the account.

The contribution limits of $6,000 (if you’re under 50) or $7,000 (if you’re 50 or over) apply to both Traditional and Roth IRAs. That is a total amount that you can contribute to either type of IRA, or a combination of both types.

There are also some income requirements that restrict who is eligible to contribute to a Roth IRA. The restrictions below apply based on modified adjusted gross income (MAGI):

Single individuals with income over $137,000 are not eligible.

Single individuals with income between $122,000 and $137,000 can contribute a reduced amount.

Married couples filing jointly with income over $203,000 are not eligible.

Married couples filing jointly with income between $193,00 and $203,000 can contribute a reduced amount.

Married couples filing separately are less likely to be able to contribute to a Roth IRA. See this page for details.

401(k) Traditional IRA Roth IRA Contributions are tax deductible Yes Yes No Withdrawals are tax-free No No Yes Max contribution (2019) $19,000 $6,000 $6,000

SEP IRA

A Simplified Employee Pension (SEP) plan is a type of Traditional IRA that is an option for businesses owners. A SEP IRA can be used to provide an investment account for yourself if you are self-employed, and it can also be offered to your employees. If you have employees, it’s important to note that contributions must be the same for the employer and employees.

Contributions to a SEP IRA are deductible, so they will reduce your taxable income. Taxes will be paid when money is withdrawn from the account.

In 2019, you can contribute up to 25% of your net income into a SEP IRA, up to a maximum of $56,000.

Health Savings Account (HSA)

An HSA is a tax-advantaged medical savings account that is available to people who have high deductible health care plans. As high-deductible health insurance plans have become increasingly popular, it seems like HSA’s have received more attention.

Although an HSA is technically not a retirement plan, medical costs are a big part of life, and you need to plan to be able to pay for them. HSA’s offer triple tax advantage:

Your contributions are tax deductible You will not be taxed on the growth Your withdrawals will not be taxed.

You may be familar with Flexible Spending Accounts (FSA), another type of account that can be used to cover medical expenses. The most important difference between an HSA and an FSA is that money put into an FSA must be used during the course of the year. The money in your HSA, however, will rollover from year to year.

As long as you use the money in your HSA for a qualified medical expense, you won’t be subject to tax or penalties. For 2019, you can contribute up to $3,500 in an HSA.

This ties into retirement planning and saving because you can use funds in an HSA for healthcare costs after your retirement. If you are eligible for an HSA, it is something you should consider.

For a much more detailed look at HSA, please see What is an HSA? The Ultimate Tax Shelter to Save Money at Young and the Invested.

Investment Options

Choosing the type of investment account you want to use is part of the process, but of course, you’ll also have to decide the specific investments that you want to use. While the specifics will depend on factors like your age, when you plan to retire, and your risk tolerance will play a huge role, one important thing to keep in mind is the impact of fees on your investments over a long period of time.

Unfortunately, some 401(k) plans offer mostly mutual funds with high management fees. It’s important to know and understand the fees associated with any investment you are considering.

This article at Business Insider provides a more in-depth look at the subject of choosing investments for your retirement accounts.

Step 3: Accept Some Help from Your Employer and from Uncle Sam

If your employer offers a matching contribution to your 401(k) plan, be sure that you are contributing enough to get the maximum match from your employer. The employer match is free money. If you don’t take them up on the offer, it’s like passing up a raise.

For example, your employer may offer to match your 401(k) contributions up to 3%. If you have a salary of $50,000 and you contribute $1,500 per year (3% of your salary) to your 401(k) plan, the company will match that $1,500.

The details will vary from one employer to the next, but most employers who offer a 401(k) plan will also offer some sort of match. Check with your HR department about the policies of your plan and make sure you understand how the matching contribution works so you can take full advantage of it.

In addition, the government also offers some assistance for retirement savings. We looked at the details related to 401(k)s, Traditional IRAs, Roth IRAs and SEP IRAs in the previous section. The tax benefits of these accounts can be huge, so be sure you’re doing as much as you can to take advantage.

Step 4: Start Saving and Investing

Now that you’ve looked at the different types of retirement plans/accounts and decided which to use, it’s time to start saving and investing.

Keep an Eye on Your Asset Allocation

The ideal asset allocation of your retirement investments will change as you get closer to retirement. You’ll need to periodically check the allocation of your investments and make adjustments as needed. This asset allocation calculator can be very helpful.

One option is to use a target date retirement fund, like those offered by Vanguard. You’ll pick the target date for your retirement and fund managers will automatically adjust the asset allocation as you get closer to that date. There are mixed opinions on these types of funds. Some of them tend to come with high fees, although Vanguard’s are very reasonable.

Don’t Try to Time the Market

When it comes to retirement savings, you should be contributing money on a regular basis. Don’t try to time your investments or avoid investing because of market conditions, or because of what you think might happen in the future.

Saving for retirement is a long-term thing, so keep making progress by adding to your investments on a regular basis. Don’t be concerned with what’s going to happen in the short-term, and definitely don’t let that stop you from getting started with your investing.

Don’t Panic

Unless you’re getting close to retirement age, there is no reason to panic over retirement savings or investments. There are bound to be ups and downs, but if you keep adding to your investments you will be in a much better position to reach your long-term goals.

Make Catch Up Contributions if You’re Over 50

If you’re 50 years old or over, you’re eligible to contribute more to a 401(k) or IRA. If you got a late start to your retirement savings, these catch-up contributions can make a big difference. Make the additional contributions if you are able to do it.

Step 5: Keep Going

Reaching your retirement savings goals, and making sure you have enough to last, will require you to keep moving forward. Fortunately, saving with a 401(k) is easy to automate with the help of regular contributions that will be taken out of each paycheck automatically. Automated contributions remove the chance that you’ll spend the money instead of saving it.

If you use an IRA, you can either make contributions on a regular basis throughout the year, or in one lump sum once per year. Making small contributions each pay period is the best way to do it for most people, and just build it into your budget.

Cut Expenses Where Possible

If you feel like you don’t have enough to be saving for retirement, reducing your ongoing expenses is one way to free up some money. While there are plenty of ways to save money, the nice thing about reducing your monthly bills is that you’ll be saving money every single month, so you can use that money to save on a regular basis.

Increase Your Income

Another way to find some money to save for retirement is to increase your income. Of course, you can do this at your job (get a raise, work overtime, take a higher-paying job), or you could start a side hustle to make some extra money outside of your job.

Get Started Towards Your Retirement Goals

Now that we’ve gone over the 5 steps, you have a roadmap that can help you to get your retirement savings on track. If you don’t already have a sufficient emergency fund, be sure to start there.

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