Antwone HarrisÂ®, certified financial planner and financial consultant for Charles Schwab, and Ted Benna, author ofÂ 401(k)s for Dummies who is commonly referred to as the â€śfather of 401(k)sâ€ť explored some of the common excuses people make about why they donâ€™t contribute to a retirement investment vehicle. They offered this advice.
1. I Donâ€™t Make Enough Money.
â€śThis is certainly true for some peopleâ€”probably anyone earning less than $20,000 per year. Otherwise it is a matter of priorities. Tracking discretionary spending for only one week will show that substantial amounts are being spent on unnecessary items,â€ť says Benna. â€śSomeone who does this should be able to identify items to eliminate that will enable at least 1% of pay to be saved.â€ť Of course, that is far from the amount that you need to save, but it beats not saving anything. The goal should be to move up from there in workable increments.
2. My EmployerÂ Doesn’tÂ Match.
â€śThe greatest benefit for most workers of a 401(k) plan isnâ€™t the tax break or the employer match. It is the fact that savings takes place automatically each pay period,â€ť Benna says. â€śVery few workers have the discipline to save outside the plan what they would be able to save through the plan.â€ť Whether itâ€™s a 401(k), Roth, or traditional IRA, retirement savings offer immediate tax deductions, tax-deferred growth on your savings, and usually a matching contribution from your employer.
3. I Have Too Much Debt.
â€śSet up a budget and stick to it if you donâ€™t have one. Do not continue adding to your debt; get your debt load down to a level where you can contribute at least the amount that is matched by your employer ASAP,â€ť says Benna. â€śIf you have a match provision itâ€™s a no-brainer; itâ€™s 100% return,â€ť says Harris. If you do not have a match it may behoove you to focus on the high-interest nondeductible debt first, but itâ€™s imperative that you speak with a professional who can help you create a strategy to pay off your debt and secure enough funds for your golden years.
4. My Job Doesnâ€™t Have a 401(k)
If you have your own business and are self-employed with no employees, Harris recommends an SEP IRA, which allows you to make contributions based upon the earnings from the business. If you have employees, Harris recommends a Simple IRA account. If youâ€™re not self-employed, Harris suggests a Roth account first because contributions canÂ be withdrawn tax free at age 591/2. If you canâ€™t do a Roth, go with a traditional, says Harris, but go with some type of vehicle that allows the growth to be tax deferred. If you choose to invest in an IRA, Benna suggests considering automatic monthly withdrawals from your checking account into your IRA if you have a tough time coming up with lump sum contributions.
NOTE FROM THE EDITORS: Some retirement plans have fees that can impact your performance over time. Review your plan with a professional.