TEMPLE, Texas — Are you saving enough for retirement? Is there a risk that you will outlive your money when you finally stop working? It's something to think about, even if you are young. So, we dove deeper and talked to an expert to find out how much and what we should be saving for.
The more of your income you save, the sooner you will grow your wealth and set yourself up for retirement. But what should that look like?
Certified financial planner Neil Vannoy told 6 News, “A common rule of thumb is to invest 10% of your pre-tax earnings. But if you want to improve your chances of having a secure retirement or being financially independent early in life, I suggest investing at least 15% of your earnings, if not more. Be sure to include any match you receive from your employer when calculating the percentage of your income that you save. For example, if you receive a 4% match from your employer, you'd only need to contribute 6% of your salary to be saving 10% of your paycheck."
Unless you are making a very comfortable income, Neil says you should feel what you are saving.
“I tell clients that if they're comfortable with the amount of money they're contributing to their 401(k)s, IRAs, and other investment accounts, they're probably not saving enough. If you're not dedicating as much as you should for your retirement goals, try increasing the amount you save by a small amount each month until you hit your target. This is easier to do for most people than increasing your savings by a large percentage all at once."
And then there's the age old question, do you pay taxes now or in the future by investing in a Roth IRA or a traditional?
Neil told us, "In general, investors that expect to be in the same or a higher tax bracket in retirement should opt for a Roth 401(k) or Roth IRA over pre-tax investments. That said, it's a good idea to build up a mix of pre-tax accounts, tax-free Roth accounts, and regular investment accounts so you can respond to changes in the tax code over time."
And then where you make your investments and the risks you take to go either stocks or bonds will depend on your age and your financial risk taking status.
Neil says, "The correct mix will depend on factors like your investment time horizon, tolerance for risk, and investment goals. Viewers can find asset allocation calculators on websites like morningstar.com, smartasset.com, and bankrate.com, but it's a good idea to get a second opinion from a professional to make sure you're on the right track."
And Neil was talking about asset mix, a reminder that asset allocation refers to how you invest your portfolio across various types of investments like stocks, bonds, and cash. Neil says you need a nice mix.