From
Your Perspective:
Retirement catch-up for late starters
Retirement catch-up
for late starters
Like many people, you may feel you’re behind schedule in saving for
retirement. With so many competing financial demands — daily living
expenses, childcare, healthcare, and college costs — you may find it a
challenge to put aside anything for the future.
But
getting a late start doesn’t mean you’ll never reach your retirement
goals. Fortunately, there are strategies to help you make up for lost
time, including increasing the amount you’re saving and choosing
different ways to invest. You may also consider retiring later or
working part-time to give your retirement accounts more time to grow.
Compounding
can be an important ally whenever you invest. Compounding is what
happens when your investment earnings are reinvested and in turn
generate earnings. It means your account may increase in value faster
than if you were accumulating earnings only on your
principal,
or contributions.
Also, as soon as you start investing specifically for retirement, you’ll be able to benefit from the
tax deferral
offered by most retirement plans.With taxable investments, you owe tax each year on any
dividends
or interest the investment pays, but no tax on any increase in an investment’s value until you sell and realize a profit. With
tax-deferred accounts,
you postpone paying income tax on earnings until you withdraw money
from the account, so your investment compounds untaxed. In many cases,
you can also defer taxes on your contributions to these accounts.
Only 18% of workers polled in the 2008 Employee Benefit Research Institute’s Retirement Confidence Survey say they are very confident they will have enough money to live comfortably during retirement. That’s 9 percentage points lower than in 2007 — the biggest drop in the history of the annual survey, co-sponsored by the American Savings Education Council (ASEC) and Mathew Greenwald & Associates.
To learn more, you can visit
www.ebri.org.
