Retirement Saving Stories – How 5 Regular People Save for Retirement
The goal is simple: You want to reach your retirement years with enough money to travel, pursue your favorite hobbies and spend time with your grandchildren without worrying about whether you can pay your energy bill each month.
But how you reach this retirement savings goal is decidedly more complicated.
Financial advisers offer plenty of advice on how to best save for retirement, and the internet is filled with stories that lay out detailed blueprints on how you can meet those goals. But what steps are people actually taking to hit their retirement milestones? MoneyRates spoke to five people about the tools and strategies they are using for retirement. Here’s what they had to say.
Kate Dore, 32
Photo courtesy of Kate Dore
Social Media Marketing Specialist
Nashville, Tennessee
Retirement Funds: IRA, Taxable Investments Account
Saving for retirement has become a passion for Nashville’s Kate Dore. The social media marketing specialist regularly lists her net worth on her finance blog, Cashville Skyline. As of early May of this year, Dore had saved more than $53,000 in a Roth individual retirement account (IRA) and more than $21,000 in a taxable investments account.
That’s impressive, especially considering that the 32-year-old has, as she says, never been a particularly high annual earner.
“I have always been an average earner,” Dore says. “I used to work as marketer in the music business. Now I’m in marketing for social media. I’ve rarely had access to a 401(k) account. I want to show people that you can get a hold of your money and save for retirement even if you are not making six figures every year.”
Dore has had a 401(k) plan exactly once in her working life, when she worked in marketing for a record label. But she only held that job for six months before being laid off. Since then, she’s never had the opportunity to invest in a 401(k) retirement savings account.
That hasn’t stopped Dore from saving for retirement. Since turning 18, she has invested every year in her Roth IRA. She now maxes out her contribution to this savings vehicle every year. She also makes regular investments in her taxable investments account because maxing out the Roth IRA isn’t enough, according to her.
Dore says that she is confident that she is on track to reach her retirement-savings goals.
“When I was in my early 20s, I wasn’t earning a lot,” Dore said. “But I knew that I had to start saving anyway, even if it was just a little. When I was 18, I contributed $1,000 a year. That was my goal, even when I was waiting tables. Since then, I’ve tried to contribute as much as I can to that.”
Sean Coffey, 35
Photo courtesy of Sean Coffey
Media and Program Evaluation Manager
California Reinvestment Coalition
San Francisco, California
Retirement Funds: Roth IRA, Traditional IRA, 403(b) Plan
Sean Coffey just celebrated seven years of marriage. He and his wife, Elizabeth, have two children under the age of 3. In San Francisco, that means a lot of expenses.
“Our daycare bill in San Francisco is more than our mortgage payment,” Coffey says.
Since having children, the Coffeys have slowed the pace of their retirement savings. But that doesn’t mean they haven’t saved at all. The Coffeys invest every year in a Roth IRA and a traditional IRA. Coffey also contributes to his company’s 403(b) plan, which is like a 401(k) plan only for tax-exempt organizations.
Coffey is confident that once his children are in public school, he and his wife will again boost the rate at which they are saving.
“We talked to a financial adviser about a month ago,” Coffey says. “The adviser told us that once our kids are in school, we’ll feel like we are making money again. In the next couple of years, I don’t see us socking away a lot for retirement. Once we are done with paying for daycare and preschool, though, we will ramp that back up.”
Coffey said that during the last two years, he and Elizabeth haven’t invested more than $1,000 each year in their IRAs. But before they had kids, they had stashed plenty of dollars in these accounts. Because of this, the Coffeys aren’t worried about hitting their retirement goals.
“Once the kids are at school, we will maximize our IRAs again,” Coffey says. “We were doing that before the kids, and we expect to do it again soon.”
Oraynab Jwayyed, 45
Photo courtesy of Oraynab Jwayyed
Founder and Owner
Business Interludes, LLC
Edmond, Oklahoma
Retirement Funds: 401(k), IRA
Oraynab Jwayyed admits that she started saving for retirement late in life, not seriously socking away money until the age of 42.
“I was an independent contractor for most of my adult life, and retirement was never part of the plan,” Jwayyed says.
That’s changed. Jwayyed returned to school and finished her business degrees. She found her first corporate job, giving her access for the first time to a 401(k) plan. At that time, she contributed about 20 percent of her earnings into her account.
Jwayyed then moved to a new job, working in risk analysis for a mortgage lender. She rolled her first 401(k) fund into an IRA while contributing to the 401(k) account offered by her new employer. Jwayyed has retained a financial adviser to help manage both funds. She contributes 10 percent of her salary to this new account.
“As my salary increases, I plan to contribute more to both funds,” Jwayyed says. “I’ve been told by my financial adviser that my funds are working for me. I should have enough money to retire on when that time comes.”
Today, Jwayyed runs Business Interludes, a company dedicated to helping women manage their money. She is also the author of “Starting Over,” a book Jwayyed wrote to help women work through financial crises after divorces or break-ups. Jwayyed has experience in this as she had to work through rough financial times after a divorce.
Too many women, even those who were regular savers while married, lose sight of their retirement and financial goals after divorce, Jwayyed said. She wasn’t going to fall into that trap, she said.
“I knew that I had to take care of myself financially after the divorce,” Jwayyed says. “I had decided it was time to focus on saving for retirement and I wasn’t going to let my divorce stop me from doing that.”
Jwayyed said that because she started saving for retirement later in life, working with a financial adviser has been key. Her adviser regularly studies Jwayyed’s finances and investments to make sure she remains on track to hit her savings goals.
“Every year, we sit down and we go through an investment audit,” Jwayyed says. “We look at my portfolio, my assets, everything that I have. We adjust if we have to. We discuss future plans. You have to always adapt as you are working toward retirement.”
Abie Cooperberg, 27
Photo courtesy of Abie Cooperberg
Accountant
New York City
Retirement Funds: Stocks, Real Estate, High Interest Savings Account, 401(k)
When Abie Cooperberg and his wife, Samara, first married, the couple pooled their money into one account with the goal of saving for a home in the New York City area. The only way to do that? They needed to create a detailed budget that would break down every financial detail of their lives, Cooperberg said.
Today, the Cooperbergs use a spreadsheet that they save on Google Drive to track every dollar they spend and every cent they save.
“We live by this,” Cooperberg says. “Every single dime we spend goes onto this sheet.”
At the end of each month, the spreadsheet tells the couple how much they’ve saved. They then take that money and move it into a separate savings account. From that point, the couple moves the money to one of three destinations: They invest a portion in the stock market, some in real estate deals and the rest in a high interest savings account.
“We have been doing this for the last year-and-a-half, and we have found this to be the most effective way to monitor and save money,” Cooperberg says.
By following their budget, the couple saved 50 percent of their combined post-tax sales in 2015. This money is in addition to the regular 401(k) contributions that both Cooperberg and his wife, who works in public relations, make at their jobs.
Saving might get a bit more challenging. As of the writing of this story, the Cooperbergs were expecting their first baby. But Cooperberg says that the couple expects to continue saving even after adding in the expenses of diapers and baby bottles.
“If we maintain this for the next two years, we should be able to save a lot of money for retirement,” Cooperberg says.
Aaron Norris, 39
Vice President
The Norris Group
Riverside, California
Retirement Funds: Roth IRA, Real Estate, Rental Income
Aaron Norris has had an interesting career path. He formerly worked as an actor in New York City. Today, he works as a vice president in the family business, The Norris Group, a Riverside, California-based company that invests in real estate.
And investing in real estate is giving his retirement savings a boost.
Norris owns several rentals — under 10 — and his own home. He has converted half of his retirement dollars into a Roth IRA that now holds a rental and several trust deeds. He has hired a professional financial planner to handle the rest of his retirement funds because, as he says, he “doesn’t get blamed for not being diversified.”
To Norris, a diverse retirement savings portfolio is one that includes investments in physical real estate. Real estate is an especially attractive way to build retirement savings because homes have the potential to increase in value, meaning that when the time comes, Norris can sell them for a profit.
“All of my California rentals have had an exciting run in price,” Norris says. “It would be very difficult to ask for a $100,000 raise, despite my dad owning the business. Along the way, the properties continue to generate cash flow, which has been extremely awesome in helping save and buy more assets.”
Of course, there’s no guarantee that homes will increase in value. This is why Norris says that investors need to do their research, studying an area closely before investing in real estate in any particular neighborhood. But for those investors who do find a property that increases in value over time and generates rental income at the same time? They will be able to grow their retirement savings at a quick rate, Norris said.
“I think investing in real estate is a great tool for building your savings,” Norris says. “It’s not for everyone, but real estate rentals can be very profitable.”
Frequently Asked Questions
Q: I am receiving my divorce settlement from my husband’s IRA. They told me that now I have to put it in another IRA account. Is that true? I need some of that money to pay down debt. I am 61 – does my age help?
A: According to the IRS, a divorce settlement from a spouse’s individual retirement account effectively becomes a new IRA on behalf of the person receiving the settlement. So, to avoid tax consequences on the total amount, you would be wise to put the money into an IRA, and then look at how best to take distributions from that IRA to meet your needs.
First of all, you should arrange for the transfer of the money to be done via a trustee-to-trustee transfer, rather than by you receiving a check. This will clarify that it is a non-taxable transfer from IRA to IRA.
Transferring from a traditional IRA vs. Roth IRA
Another important thing to establish in this process is whether the money is coming from a traditional or a Roth IRA. You’ll most likely want to transfer into the same form of IRA to avoid unfavorable tax treatment. However, if it is a Roth IRA you should establish with your new trustee whether or not your IRA will be subject to the five-year waiting period on distributions from a Roth IRA, or whether the original start date of your husband’s account can be carried over to yours.
Once the transfer occurs, and if you are not subject to that five-year waiting period for a new Roth IRA, the good news is that because you are older than age 59 1/2, you can take distributions from your IRA without penalties. However, the absence of penalties does not mean there are not potential tax consequences.
Non-deductible vs. deductible contributions
The key difference between a Roth and a traditional IRA is that a Roth is funded with non-deductible contributions, while a traditional IRA is funded with deductible contributions. What this means, in effect, is that tax has already been paid on money going into a Roth, but not on money going into a traditional IRA. Because of this, distributions from a Roth IRA are not treated as ordinary income for tax purposes, but distributions from a traditional IRA are.
That means that while you should not have to pay an early-distribution penalty on distributions from a traditional IRA because of your age, you would still have to pay regular income tax on those distributions. Since these distributions are treated as ordinary income, you should manage the timing of those distributions to avoid taking too much out in any one tax year. That could bump you up into a higher tax bracket.
The above are some general guidelines on what to look for, but keep in mind that it is difficult to generalize when it comes to tax topics. There are often specifics of a person’s situation that could affect tax consequences, so you should consult with your IRA trustee or a tax advisor before taking any actions.
Q: I have $18,000 in an IRA money market account. It was half of my ex-husband’s IRA that was transferred to me via judge’s orders. If I take a few thousand out, do I have to pay taxes on it?
A: This is a complex situation with several variables, so you would be wise to consult a tax expert with the particulars. However, the following are some of the key issues in play:
- Your age. The critical number here is 59 1/2 — and older is better. If you are younger than 59 1/2, most likely you would incur a 10 percent penalty on any distribution from the IRA, on top of any ordinary tax liability the distribution would trigger. That extra penalty is so onerous that most experts advise against taking early distributions from an IRA. So, if you are younger than 59 1/2, you might want to stop right here and decide to leave the money in the IRA, keeping in mind that you can change investment vehicles while keeping the money in an IRA if the money market account is not meeting your needs.
- The type of IRA. There are two types of IRAs: Roth and traditional. On a Roth IRA, tax has already been paid on the contributions, so you would just owe tax on any investment earnings in the plan when those earnings are distributed (i.e., withdrawn from the IRA). In a traditional IRA, the entire amount of the distribution is treated as income for tax purposes.
- How long the plan has been set up. If it is a Roth IRA and you have had it for less than five years, you may incur the 10 percent early distribution penalty if you make withdrawals before the account’s five-year anniversary.
- Cost basis. If the account is a traditional IRA, cost basis should not be an issue, since there is no distinction between prior contributions and investment earnings. In a Roth IRA though, that distinction matters, and you might want to consult with a tax expert to determine the cost basis because the transfer from your husband could complicate that.
The biggest factor here is whether you are older than 59 1/2, because if you are younger than that you could be incurring both taxes and a penalty. However, whether this is a Roth or a traditional IRA is also critical, because it determines whether taxes have already been paid on the original contributions to the account. In that context, it would seem that a Roth IRA would have more long-term economic value than a traditional IRA as part of a divorce settlement, because the traditional IRA would carry a bigger future tax liability.
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