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Rising to the Challenge — The road to ample retirement savings is fraught with hazards. Here are four of the most common roadblocks—and the most effective solutions.
 By Suzy Frisch
Challenge #1:
The Late Start
It’s simple math: An excess of demands on our pocketbooks plus what feels like a shortage of funds equals not much in the bank for retirement. Between paying off credit card debt, making mortgage payments, banking a college fund for each child and the day-to-day cost of living, a lot of Americans have put retirement savings on the back burner. In fact, the general U.S. savings rate is negative 0.5 percent, the lowest rate since the Great Depression, according to the U.S. Department of Commerce.
Solution #1:
Start Saving Today
Saving early, even in small amounts, can make a huge difference. Compounding interest—interest that is paid on both the accumulated interest and the original principal of an investment—allows your money to grow greatly over time.
“The power of compounding interest means that the younger you save, the less you have to save,” says Jon Roth, a consultant with Thrivent Financial in Exton, Pennsylvania. “If you start putting money in a mutual fund in your 20s, for example, the money has a long time to double and double again.”
A great place to put those savings is in a Roth IRA. Rick Edinger, a chartered financial consultant who manages the Thrivent Financial retirement consulting sales desk, is a huge fan of the Roth. Account holders make contributions to their Roth after they pay taxes on it. Roth earnings can be withdrawn tax-free if the account holder meets certain IRS-imposed requirements. Another tax advantage is that withdrawals of contributions can be taken tax-free and penalty-free. Compare this to a traditional IRA, where owners invest the money before taxes but must pay income tax on their withdrawals. Another plus is that Roth owners aren’t forced to start withdrawing their funds at age 701/2 as they are with a traditional IRA, explains Edinger.
Challenge #2:
The Credit Crunch
America’s love affair with consumer debt doesn’t make it any easier to incubate a sizable nest egg. Clark Krueger, a senior financial consultant with Thrivent Financial for Lutherans in Peoria, Arizona, often sees couples with $10,000 in credit card debt with annual percentage rates of 18 percent or higher.
Solution #2:
Cut up the Cards
One way to make sure you don’t rely on credit cards is to build a cash reserve of three to six months. That way, if your car needs new tires, you don’t have to use credit to pay for the unexpected expense, notes Krueger.
That doesn’t mean you should cut up all of your credit cards. Keep a card or two for emergencies or monthly expenses. The most important rule of holding a credit card is to keep the balance at zero each month. That way, you’re not spending any of your hard-earned cash on interest.
Challenge #3: Leaving
Money on the Table
When it comes to retirement saving, Patrick Egan, manager of asset management marketing at Thrivent Financial, says the most common mistake he sees is people leaving money on the table through their 401(k) or other employer-sponsored savings plan. Those programs often have a match. Egan asks, “Why walk away from free money?”
Solution #3:
Max out Your 401(k)
It might just be the simplest way to amp up your savings: Participate in your employer’s 401(k) plan. In turn, most employers will match your allocation up to a certain level. This one is a true no-brainer, since money is automatically taken out of your paycheck and applied to your account.
Challenge #4:
The Perilous Portfolio
The two most common portfolio errors are not having diversified holdings and being too conservative. Many people will sock away money in a 401(k) or IRA and let it sit unattended for years. Over the years, even a carefully calibrated plan might become unbalanced as stocks or bonds perform differently.
That’s what happened when the tech bubble of the 1990s burst on some undisciplined investors’ lopsided portfolios. “Some people lost thousands of dollars,” says Roth. “Now they are still working to make up for that loss.”
Solution #4:
Take Risks and Diversify
If you’re in your 20s to age 50, it’s critically important to have a large chunk of your portfolio in stock—at least 60 to 75 percent, Egan recommends. The younger you are, the more you should have in equities. That’s because there is plenty of time before retirement to ride the natural fluctuations of the stock market, and you want to be able to take advantage of the 8 to 12 percent average return that experts say the broad stock market delivers. Be too conservative, and you might not build up enough capital to last throughout your retirement or to provide you with the lifestyle you expected.
Diversification is also imperative to creating a secure retirement. Making sure your account has a mix of stocks and bonds, as well as market sectors, is a sure way to ensure healthy growth in your portfolio. Have a range of stock funds for large companies, small companies, international firms and real estate, as well as short- and long-term bonds. It also means not devoting too much of your stock holdings to your employer’s stock. This can be a risky—and costly—error. “People want to believe the place they spend their career is immune to trouble,” Krueger says. “But that’s just not the case anymore.”
The best way to ensure that your savings reach the equilibrium you desire is to rebalance your portfolio every year or two with the help of your Thrivent Financial representative.
Suzy Frisch is a Twin Cities–based freelance writer and former editor at Twin Cities Business Monthly.
Read more:
 The Best Financial Call You Can Make
You can move into the retirement savings fast lane by simply calling your Thrivent Financial representative. He or she will help you take a candid look at your financial picture today, help you set savings goals and help you achieve those goals. To find out the name of your Thrivent Financial representative, visit www.thrivent.com/locate or call 800-847-4836.
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