Feeling like I am in dire retirement straits. I am a married 35-year-old father of four and provide 95% of the income for my family. Most of my career we have lived paycheck to paycheck. I have managed to save approximately $135,000 in retirement funds and we have a rental property, which could supplement our retirement.
We are currently maxing out our retirement savings per IRS guidelines, but it still seems like we will be short. What am I doing wrong?
Dear reader,
First: Don’t panic. Yes, the 30s are a critical time to save for retirement but you already started in the midst of so many other financial obligations, so you’re already ahead of the curve.
The fact that you’ve already amassed $135,000 with a family of six and while living paycheck to paycheck most of your career is a great feat, and it’s obvious you care about ensuring your future financial security—good for you.
Financial advisers agree. “Accumulating six figures of retirement savings by age 35 and maxing out a retirement account is a fantastic start,” said Alec Quaid, a certified financial planner at American Portfolios Denver.
You mentioned you’re maxing out your retirement savings. I’m not sure what kind of account you have but if it’s a 401(k), that’s wonderful. If you have access to a 401(k), I suggest opening an IRA as well. You might want to consider a Roth, which is funded with after-tax dollars. Even if you can’t manage to max that one out too, any additional money earmarked for retirement will help in the long run.
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Now if you’re already doing that, consider having your spouse also open an IRA. Even if your spouse doesn’t earn any money, spousal IRAs allow the married couple to contribute to the account on behalf of the spouse who does not work—that’s more cash stashed away for your future. If you go the Roth way—for either your IRA or your 401(k)—and you follow the rules, that money will be tax-free at retirement.
Right now, you may not want to work with a financial adviser, but in the future it is worth considering. They could help you achieve any financial goals you have with input on investment positions and contribution amounts, and they can also provide peace of mind for when you’re worried you’re not doing enough.
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Also keep perspective. Using the Rule of 72 and assuming an average rate of return of 7%, it takes about 10 years for a person to double his investment, said Amie Agamata, a certified financial planner. So for example, by 45 years old, your $135,000 would be $270,000. By 55, it’d be $540,000. And by 65, you’re looking at…
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