Retirement Savings: How to Catch Up After a Break
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Here's your money briefing for Thursday, March 18th. I'm J.R. Whelan for The Wall Street Journal. Financial experts say you should put away 10 to 15 percent of your annual salary to save for retirement. But for a lot of us who lost a job or whose finances were upended by the pandemic last year, putting that kind of money aside was nearly impossible. It may seem like a steep hill to climb to get your retirement savings back on track, but it can be done.
There are some fairly easy strategies, or at least simple strategies, to implement that you might think about implementing when you're able to return to work and think about saving again.
Our retirement reporter, Ann Tergesen, has been running the numbers, and coming up, she'll share some of those strategies for catching up on missed retirement payments. That's after the break.
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A lot of people's retirement savings plans got derailed last year, but temporary interruptions in building an SDAG are actually pretty common.
How did the pandemic disrupt retirement savings plans?
So how can savers get back on track? Our retirement reporter, Ann Tergesen, joins us with some ideas. Ann, thanks for coming on the show.
You're welcome.
So, you know, a lot of people are facing a gap in employment because of the pandemic. But even aside from that, there are plenty of other reasons people might take a break from work and pause their retirement savings.
Yeah, so I mean, this model of like, you know, you start working at 22 and you consistently work until you're 65 is pretty unrealistic. A lot of people take time off to go back to school, take time off to get further job training. Some people want to switch careers and take a little while off in between to figure out how to best approach that. A lot of people take time off to raise children or to take care of older relatives. So there's a huge number of reasons why people take time off from the workforce.
Now, experts you spoke with say that if someone has to suspend retirement saving, it might not be as big of a problem as it sounds. What's the thinking behind that?
Well, it kind of depends on a number of factors. I mean, interestingly, I had some people run numbers for me. And the price that you pay as you get older declines. And the main reason for that is because when you make contributions when you're older, maybe in your 50s or 60s, there's less time for the money to compound and grow over time. There's a bigger cost to taking time away from saving when you're younger because you're giving up years of potential growth on each dollar that you don't save. But, you know, it's not necessarily the end of the world. I had numbers run looking at people who took like a three-year hiatus from work. And three years sounds like something that would... cause people to be very concerned about their retirement finances.
But at least for a 50-year-old person, using some of the numbers that I ran, it looks like the cost of a three-year gap would be somewhere on the order of about 10% reduction in final nest egg, which to me seemed not necessarily like nothing, but it's not a huge reason to panic.
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