Many people don't worry about retirement until a looming number acts as a lightbulb.
In 2017, Wendy Mays was in her mid-40s and at the tail end of adopting several young children. "I was very scared," said Mays, a former criminal defense attorney in San Diego who has a podcast on financial independence for families.
Mays, now 48, and her husband realized they would have very little for retirement aside from some contributions he had been making in his school retirement fund. "We were still behind," Mays said.
They thought it would be impossible to save more because they started with a scarcity mindset. "We were already living paycheck to paycheck," Mays said.
But they had to make changes. "We questioned every expense," Mays said, after going through recent bank statements.
Discretionary spending — "If you want something, you buy it," Mays said — was particularly ready for trimming. "We drastically reduced our grocery and going out spending," she said.
Mays and her husband then got serious about retirement savings, committing to increasing contributions every quarter until they reached a max-out level.
"Right now we are at 50%," she said. "The tax benefit has been huge for us. So many regrets," Mays added. "But we can't undo our mistakes — only do better now that we know better."
If you're not winning at 401(k) investing, don't feel bad. You are not alone.
The average 20-something had $11,800 in a 401(k) in the first quarter of 2019, according to Fidelity, the country's largest retirement plan provider. For people in their 30s, the balance jumped to $42,400.
People have a hard time visualizing the future, said Chad Parks, founder and CEO of the retirement plan provider Ubiquity Retirement and Savings in San Francisco, because we are not programmed for long-term thinking.
"We felt we always had time, and suddenly I was 46," Mays said. "I didn't have time."
Or you think it's too complicated.
Whatever the reason, John J. Vento, a certified financial planner, says not putting money in your 401(k) is the most significant mistake.
Retirement plans "represent a significant percentage of most retirees' income," said the president of the John J. Vento CPA firm in New York. "If you are not contributing, chances are you will not be able to maintain your standard of living."
Thinking "I don't have it, I can't afford it" was the biggest roadblock, said Mays.
To get over it, scrutinize your spending and choose a small monthly amount. "Even if it's $100 a month," Mays said. "Then increase it to $200."
Since the money is taken out pretax, your paycheck will be smaller by less than that amount.
If the lineup of investment choices is overwhelming and you don't feel you know enough to make a smart decision, consider a target-date fund.You just need to make one decision: when you think you might retire. Choose the fund whose name ends in that year.
One reason for the low average balance in many 401(k) accounts: People aren't deferring enough from their paychecks into their workplace retirement accounts. The average rate in 2018 was 6.9%, the same as in 2017, according to a recent report from Vanguard, the investment firm.
Say your company enrolled you in the plan at a specific level — often 3% — and you didn't increase it. That level is far too low.
"Definitely 3% is not going to get you enough savings over your lifetime," said Parks. "That has been calculated many times."
You want to save at least 10%, so turn up the contribution level. You can do it gradually, a little at a time, to soften the blow.
Your goal: 15% is far better than 10%, according to Parks. Super savers of course save a lot more, but for now, make it a goal to increase by 1% or 2%.
When you see that it doesn't make that big a difference in your take-home pay, increase it again in a few months.
If you are lucky enough to have an employer that matches 401(k) contributions, you could be boosting your annual salary by an extra 3% to 6%.
Not putting in enough to get that match is the same as turning down a raise, Vento said.
If you contribute more than the minimum because you want to get that match — usually at 6% — you're definitely getting closer. But that is still inadequate, said Parks.
Saving to the match often makes people think they'll be OK since they've basically doubled their contribution. "If you save at least double, if not triple, what the company puts in, then you're going to be fine," Parks said.
You want to go on vacation. You need to pay some bills. You just want a loan — from your own 401(k).
It's not entirely bad. The interest rate on this loan is likely to be far less than it would be on other loans, and when you pay back the interest, it goes straight into your 401(k) account.
It's often possible, but a 401(k) isn't meant to be short-term money.
If you lose your employment for any reason, you'll have a far shorter time to pay it back
The Tax Cuts and Jobs Act gives workers more time to repay, but you will still have to come up with the funds by the due date of your income tax return (including extensions).
Otherwise, it is considered an early distribution. You'll be slapped with additional income tax and penalties: a double or triple whammy.
"Taking loans should only be a last resort," Parks said.
Over the years, Mays and her husband were casual about retirement saving. When they had access to a workplace plan, Mays said, they simply made the required minimums — when they contributed at all.
"When [my husband] left a job, we liquidated the money, took all the financial hits and spent it," Mays said. "I couldn't even tell you now on what. Probably debt."
It may not feel as if you've accumulated much after a few years.
"They get discouraged by seeing the balance lower in the early years," Parks said. "Know that this little plan will grow up to be a big plan."
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.