Retirement Planning: Three Steps Can Pay Off

by James Winslow, Vice President, United Investment Services, LPL Financial Advisor

When planning for retirement, certain external factors, such as stock market returns or the rate of inflation, are beyond the control of investors. But there are issues that preretirees can control that may be helpful in building retirement assets. According to academics and others who study retirement, working longer, increasing savings, and living with economy in mind may be helpful strategies.1

Working Longer

Even a small difference such as one or two more years in the workforce can make a significant impact when building a nest egg. More years on the job can mean more time to make contributions to an employer-sponsored retirement plan. Taking classes to keep skills current and networking with people in a given profession can be helpful strategies when trying to work longer. Even part-time or seasonal work could reduce the need to tap retirement assets.

Increasing Household Savings

An employer-sponsored retirement plan is a convenient way to invest for retirement. Many employers permit plan participants to contribute a maximum of $17,500 to an employer-sponsored retirement plan for 2013. Those aged 50 and older can make an additional $5,500 catch-up contribution. The availability of the catch-up contribution means that preretirees can escalate their retirement savings rate considerably if they so choose. Note that you are first required to contribute the $17,500 employee maximum before making the catch-up contribution.

When evaluating how much you can afford to contribute, remember the tax benefits. With a traditional 401(k), contributions are taken out of your paycheck before taxes are assessed, which reduces taxable income during the year the contribution is made. Qualified withdrawals during retirement are taxable.

Living More Efficiently

With gasoline approaching $4 a gallon and monthly Internet/cable television bills averaging $166 per household, saving money is a challenge.2 But compiling a budget is a helpful exercise to see where a household's money goes. Some families are able to drive a more economical vehicle, limit restaurant meals, cut memberships they do not use regularly, and take similar steps to reduce spending and start saving more.

It is easy to be discouraged by an uneven economy and other factors outside of any one individual's control. But many households do control how much they invest and, in many areas, how much they spend. With a plan, you may be able to build retirement assets.

1Source:, "New Advisor Challenge: Convincing Boomers to Curb Spending at Age 50," September 19, 2011.
2Sources: AAA Daily Fuel Gauge Report, April 23, 2012; the American Institute of Certified Public Accountants, "AICPA Survey: Technology Has Made It Easier to Spend, Not Save," April 18, 2012.