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How to Set a Realistic Retirement Savings Goal

By U.S. News & World Report

It’s intimidating to realize that you might need to save $1 million or more in order to fund a comfortable retirement. A large retirement savings goal can feel unreachable and reduce your motivation to save every month. It’s often more productive to set short-term savings goals so you can celebrate your progress as you accumulate wealth. Here are some attainable retirement savings goals to try:

A monthly or annual amount. Instead of focusing on a final account balance, aim to set aside a specific dollar amount every month or for the year. “A lot of people get intimidated by the large numbers, but if you are starting to save early in your early-to-mid-20s and you experience even a modest investment return over the course of your career, you are letting compound interest do most of the work,” says Jennifer Harper, a certified financial planner and owner of Bridge Financial Planning in Chattanooga, Tennessee. “It’s helpful to set more of an annual goal.” You could start with a relatively small amount if you need to, but then aim to increase it each year or every time you get a raise. Consistently saving a small amount of money can be enough to accumulate an impressive nest egg if you give it enough time to grow.

[Read: How to Become a Millionaire by Retirement.]

A percentage of your salary. Many 401(k) plans are set up so that you select a percentage of your salary to contribute to the account. Saving a proportion of your income means you will automatically save a larger dollar amount as your paychecks grow. Some companies automatically enroll new employees in the 401(k) plan at a default savings rate, which is often 3 percent of their salary. However, most financial advisors recommend saving more than this. “Try to save 10 to 15 percent of your income if you possibly can,” says Charles Malsbury, a certified financial planner for ThinkPlanSave in Daly City, California. “If you can only save 3 percent this year, try to go up another 2 percent next year. Some companies also have automatic escalation policies that will boost the percentage of your pay you save over time. It’s a good idea to review your savings rate at least once per year, perhaps during open enrollment, as you set New Year’s resolutions in January or at some other annual milestone you can easily remember.

[See: How to Max Out Your 401(k) in 2017.]

Enough to get a match. If your employer offers a 401(k) match, aim to save at least enough to get the full company contribution. “Not saving up to the point when you get that full match is just leaving money on the table,” says Kartini Shastry, an economics assistant professor at Wellesley College. For example, if your employer provides 50 cents for each dollar you save in the 401(k) plan, you have just earned a 50 percent return on your investment. Dollar-for-dollar company contributions allow you to quickly double your retirement savings. However, pay attention to your 401(k) plan’s vesting schedule when you make job change decisions. Find out how long you need to stay at the company before you get to keep the 401(k) match when you leave the job.

[See: 10 Tax Breaks for People Over 50.]

Maximize the tax break. The federal government provides tax incentives to save for retirement that will help your savings grow faster. “Make sure that you are maximizing every type of tax-deferred or retirement account that you possibly can,” says Helen Berenyi, a certified financial planner and president of the wealth management firm Red Triangle in Charleston, South Carolina. You can defer paying income tax on up to $18,000 in a 401(k) and $5,500 in an IRA. For those age 50 and older, the contribution limits climb to $24,000 in a 401(k) and $6,500 in an IRA. Some workers can save in both types of retirement accounts in the same year if they meet the income requirements. Alternatively, you could contribute after-tax dollars to a Roth IRA or Roth 401(k) and set yourself up for tax-free retirement income. Roth accounts are often a particularly good deal for young people and those who are currently in a low tax bracket. “If you hit a home run in your Roth, you never pay taxes on it ever again,” Berenyi says.

Emily Brandon is the author of “Pensionless: The 10-Step Solution for a Stress-Free Retirement.”

More from U.S. News

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How to Claim the Retirement Saver’s Credit

10 Retirement Resolutions for Retirees

How to Set a Realistic Retirement Savings Goal originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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