Saving for retirement can feel like an overwhelming task.
How much do you need to save? How much can you really afford to put away and still live the life you deserve today? How does anyone make it work?
These are questions we’re entirely too familiar with and we want to help you feel empowered, not intimidated, by saving for your future. We’ve put together some tips on how you can use comprehensive financial planning to maximize your retirement savings all while enjoying your life every day until then.
Use the Investment Vehicle That Works for You
While the majority of workers take advantage of investment options like 401ks, 403bs and IRAs, not all of us are using the options that work best for us.
For example, if your company has the option of a Roth 401k, that can be a huge benefit if you are early in your career. You pay the tax now, at an assumed lower bracket than you’ll be when you retire and may be withdrawn tax-free. On the other hand, if you’re someone at the height of your career and are using this type of account, you’re likely missing out on a lot of tax savings. If instead you were to start contributing to a traditional 401k, you’d defer the taxes until you withdraw the income while you may be in a lower tax bracket.
Social Security Strategies
When to start claiming benefits is perhaps the most complicated decision of all, but doing it right can mean you end up with thousands more over your lifetime.
Social Security should be considered as a part of your overall financial picture with the understanding that the later you start receiving benefits, up until age 70, the larger your benefits will be.
The full retirement benefit is based on applying for benefits at Full Retirement Age (FRA), which is currently age 66 for those born 1943-1954 and a few months older for those born in later years. For every year you wait to apply after you reach FRA, you get an increase above that full benefit. You can apply before FRA, as early as age 62, and receive a reduced benefit. For those born 1943-1954, that is a reduction of 25 percent, meaning you would receive only 75 percent of your full retirement benefit.
Another way to save smarter in retirement is to move your existing savings around to make the most of your current and future tax brackets. We touched on Roth accounts a little earlier, but you can also complete a Roth conversion, where you pay the tax on all or a portion of your traditional IRA and move it to a Roth IRA where it continues to grow and is eligible to be withdrawn tax-free after you reach age 59 ½ and have owned the account for at least five years.
Converting to a Roth IRA is a complicated decision and may not be appropriate for everyone. Working with a financial or tax advisor can help you decide if this strategy, or any of the strategies listed above, may help you be more efficient as you save for retirement.
These investment vehicles have limitations, and restrictions you should consider. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This article was originally published on Jan. 26, 2019 in the Pioneer Press.