Saving for retirement is a long game; it’s a marathon. You could compare it to the fable The Tortoise and the Hare. A sprint won’t get you to your destination. Slow and steady progress will.
Unfortunately, 75% of Americans receive no professional assistance for this long haul. That’s simply unacceptable. It leaves far too many folks exposed to the many financial pitfalls that are lurking. As Ben Franklin said, “If you fail to plan, you are planning to fail!”
Fortunately, you do have professional support available. Following are seven ideas that we encourage on a regular basis. You may have already implemented some of these concepts; others you may want to consider. And they are all excellent reminders of what keeps you on the path toward financial independence.
- Set goals. Too many people simply guess what they will need in retirement, and many don’t have a written plan to reach what goals they have set. Others simply don’t have any goals. If you don’t have goals, you’ll drift, financially speaking.
- A comprehensive and holistic financial plan is a must. While regular savings is important, a roadmap that takes you to your goals is critical. We assist you by advocating a diversified portfolio that generally includes stocks, bonds, fixed income and more. While much work goes into the individually crafted plans we recommend, much of what we counsel is based on the evidence that long-term exposure to stocks has outperformed simple savings accounts.
- Retirement savings is a key component. If you want to stay on track for retirement, the importance of regular contributions to a retirement fund is critical. Employee 401(k) or 403(b) contributions for 2021 top out at $19,500 and $20,500 for 2022, with an additional $6,500 catch-up contribution allowed for those that are 50 years or older. At a minimum, don’t leave any free money with your employer. Be sure to contribute what you need to receive your employer’s full match. For 2021 and 2022, you may contribute up to $6,000 to an IRA or (Backdoor) Roth IRA ($7,000 if you are 50 or older). Just be aware that the IRS imposes various limits based on your income. We’d be happy to share additional details, or you may check with your tax advisor. Because of these contribution limits in tax advantaged plans, you may fall short of the 20-25% savings rate often suggested. That’s where health savings accounts (HSA) and a taxable investment account fill the gap. By the way, did you know after age 65 an HSA is taxed just like your pretax 401(k) or 403(b) for living expenses? An HSA is truly a retirement account with tax free benefits for health care expenses.
- Did you get a new job? Congratulations. As you look at benefits, how quickly can you start contributing to your company’s retirement plan? Plus, don’t forget about your prior 401(k) plan. Roll it into an IRA (depending on backdoor Roth IRA legislation) or into your new 401(k).
- Get out of debt today. Some debt can be productive. For example, a mortgage allows you to purchase a home and build equity instead of renting. Your student loans helped you pay for your education. The situation with student loan debt is fluid, especially with available grants and loan forgiveness programs, so this may be an area that requires additional analysis. Personal loans, auto loans, and credit card debt fall under the unproductive category. We can help with strategies like debt snowball and debt avalanche which are often the fastest ways to reduce and eliminate unproductive liabilities.
- Check in with Social Security. ssa.gov has a considerable arsenal of resources. It’s a good idea to check in online and make sure there has been an accurate accounting of your annual income. If your income is understated, your benefits will be shortchanged.
Our goal is to help you replace a substantial portion of your income when you leave the workforce. How much will depend on your goals and what you may want to do in retirement.
As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor. Feel free to contact me for personalized help.