What Can I Do Now to Save For Retirement

by | Aug 15, 2022 | Personal

Personally, I don’t care for the word retirement. I prefer to call the time after you finish working at your career “making a life change.” I see it as the moment you can begin living life more on your own terms. But will you be financially secure enough to live off of the money you’ve saved? That all depends on how well you prepare now. The following list is not exhaustive, but these are action steps that will help you stay on the right track to be ready for retirement.

  1. If your employer offers a 401(k), max it out as early in the year as possible. Then start a taxable individual or joint investment account to continue depositing the after-tax equivalent of your income for the rest of the year.
  2. If your employer does not offer a plan, then consider opening an IRA (Individual Retirement Account) or a Roth IRA. Currently you can deposit $6,000 a year in these accounts and receive a tax deduction, and, if you are 50+, you can add another $1,000 under the catch-up provision.
    • An IRA gives you a tax deduction now and allows the account to grow tax-deferred. Withdrawals after age 59½ are taxed as ordinary income. Withdrawals before 59½ will typically be penalized with a 10% penalty.
    • A Roth IRA does not have an up-front tax deduction, but you can withdraw potential earnings tax free after age 59½ as long as you’ve held the Roth for five years. The same 10% penalty will apply if you withdraw earnings before 59½, but you can withdraw your contributions without penalty. Also, Roth’s have income restrictions that vary depending on whether you are married or single. Married couples with a Modified Adjusted Gross Income (MAGI) of less than $204,000 and less than $129,000 for single filers can make full contributions.
  1. If you are self-employed, then SEP’s, Simple IRAs, and Individual 401(k)s are available to small business owners and sole proprietors. These plans, which are relatively easy to set up, typically have higher contribution limits. Consider which one might be best for your business organization. Again, max out your contributions as early as possible each year, and then start a taxable individual or joint investment account to continue depositing the after-tax equivalent of your income for the rest of the year. For more information on these types of plans for the self-employed click on the link to the IRS website: https://www.irs.gov/retirement-plans/retirement-plans-for-small-entities-and-self-employed .
  2. Next, you need to determine how to invest your contributions. Factors you will need to consider when making this determination add up to your level of risk tolerance. The level of risk you arrive at will help you establish a plan for investing your contributions. Some of these factors involved:
    • Determine the age at which you would like to make a change in your life. If you’re not sure, don’t worry; you can always make adjustments.
    • Decide how much money you think you will need/want on a monthly basis once you make the change. Set a minimum income goal as well as a dream goal.
  1. Make a plan to pay off your debt. By accelerating debt repayment and spending less, you could find that all the monthly interest you’ve been paying could instead be deposited in your investment account.
  2. Start or build up an emergency fund. Mentally, having resources set aside helps you sleep better, and you won’t be frustrated by having to dip into your investments to cover an unexpected expense.
  3. If you haven’t shopped around for lower rates on your P & C (Property & Casualty) insurance, you might be surprised at how much you can save.
  4. If you have changed jobs a few times over the years and still have multiple 401(k)s at previous employers, move those plans into a Rollover IRA. Typically you will save on costs and have better control of your investments.
  5. If you are saving for your child’s college at the expense of your retirement account, consider cutting back on the college fund or eliminating it all together. Remember, you can always take out a student loan if necessary, but there are no retirement loans.

If you are getting close to retirement age and you were born in 1960 or later, you should know that the government now considers full retirement age to be 67 (up from 65) with regard to Social Security. If you wish to take SS before age 67, you will not receive the full amount; therefore, it would be wise to check out the different options and do the math to see what works for you.

As I mentioned, this list is not exhaustive, and, depending on your age, you can likely take other steps to increase your retirement savings. Educating yourself on the options available to you and how they work, as well as the fees and expenses, is important for long-term success. I recommend working with a financial advisor, who can deliver current information to you quickly and offer help with sorting through the various options.