(NewsUSA) – The 21st century offers new opportunities and compelling reasons for workers to achieve the American dream of financial independence in retirement. Fortunately, making that dream a reality got easier when President George W. Bush signed the Pension Protection Act of 2006 into law. This has enhanced the ability of millions of Americans to build wealth through retirement savings programs.
Americans today generally are saving less, spending more and living longer than previous generations. A longer life span means the need for increased savings. And the sooner workers start saving, the better. In financial planning, time is your best friend.
A $125-a-month investment at a modest 5 percent annual return adds up to $50,000 in 20 years, more than $100,000 in 30 years and nearly $200,000 in 40 years. The sooner you start putting money aside for your future, the longer that money can work for you.
If you see a dime on the sidewalk, you most likely will reach down and pick it up. Yet, many workers are leaving thousands of dollars on the table by not signing up for tax-deferred savings programs offered by their employers, especially when those employers provide matching funds. The problem is that some workers are unsure how to invest.
The Pension Protection Act helps solve this problem by making it easier for 401(k)-type plans to enroll workers automatically. Workers can always “opt out,” but they won’t “lose out” by not making a decision. Rules proposed by the Department of Labor boost retirement savings for these workers by creating appropriate default investments for long-term retirement savings.
Here are a few strategies to help you start taking charge of your retirement future:
* Participate in your employer’s retirement plan at work, and be sure to take advantage of matching contributions.
* Increase the amount you contribute to your 401(k) or other retirement plan each year.
* If you’re 50 or older, make additional contributions of up to $5,000 to catch up for years in which you did not put money into the plan.
* Be realistic about expenses in retirement to ensure that you do not outlive your savings. Be sure to account for healthcare costs such as prescription drugs.
Secretary of Labor Elaine L. Chao also serves as Chairman of the Board of Directors of the Pension Benefit Guaranty Corporation. For more information, go to www.dol.gov/EBSA.