"You work, you save, you worry so...." — from "Life is Just a Bowl of Cherries" as performed by Doris Day
"Do I have enough saved?" is the overriding question that permeates every conversation regarding retirement planning.
Savers who avail themselves of basic tax sheltered and tax free plans usually enjoy a greater probability of reaching their financial goals. Granted, there are millionaire retirees who haven’t utilized tax-deferred vehicles, but the majority of Americans who have accumulated significant savings have done so partly through the use of these plans.
American workers will be allowed to contribute $19,000 in 2019 to a 401(k) or similar workplace plan. Those 55 and older can also make a $6,000 "catch-up" contribution, which of course means that next year many nearing retirement can save a total of $25,000. Those fortunate enough to qualify for company profit sharing, which often accompanies 401(k)’s, can add significantly to this amount.
Contribution limits on Health Savings Accounts will top out in 2019 at $3,500 with a $1,000 catch-up contribution allowance for workers 55 and older. As long as HSA dollars are spent on qualified medical expenses, the contributions and the growth are tax free, which makes it the most advantaged and possibly the most under-utilized of all qualified type investments. If you’ve only got $3,500 to save in 2019, this is not a bad place to start. I call HSA’s “Bonus IRA’s” to emphasize their benefits.
So how are we doing? Are we saving enough? Statistics reveal mixed data. Household retirement savings represents a greater percentage of GDP than it did five or 10 years ago, as many retirement plan balances reflated following the Great Recession. That said, most evidence suggests that we will face a moderate-to-severe retirement crisis in coming years
After a brief uptick following the 2008 Great Financial Crisis and likely due to the wealth effect of rising portfolio and home values, savings rates have plateaued at a measly 6 percent. Consider that over half (52 percent) of households over 55 have no retirement savings. And 30 percent of American workers of all ages have no retirement savings and no pension options.
Other issues make saving for retirement more challenging for Baby Boomers than for the previous generation: life expectancies are increasing dramatically, health costs are skyrocketing, fewer companies are offering pensions plans, and the cost of college has exploded for parents with children. Did I mention that things will likely cost more 10 years from now than they do today?
Starting our retirement savings contributions earlier, of course, allows us to enjoy the impact of compounding, and means that we actually need to contribute less to reach our goals. But it’s never too late to get started. As famous chess player Garry Kasparov once said, “It is better to have a bad plan than no plan.”
Margaret R. McDowell, ChFC, AIF, author of the syndicated economic column "Arbor Outlook," is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.