When planning for retirement, it is well known that the earliest you start saving, the better; however, it is never too late to get started and, even if you started late, there are some steps you can take to maximize your savings and the odds of being in good shape at retirement. Below are a few tips:
- Recognize the need to put money away for retirement.
- If you are starting, focus on saving as much as you can; if you are near retirement, consider increasing your contributions and delaying Social Security income as long as possible.
- Contribute to your 401K and meet your employer’s match: If your employer offers a 401K, take advantage of it. The maximum allowed contribution to a 401K plan in 2018 is $18,500. Additionally, if your employer offers a match, make sure to contribute enough to take full advantage of the match (For example, an employer may offer to match 50% of employee contributions up to 5% of your salary).
- Consider establishing an IRA: There are two options:
- Traditional IRA- It is funded with pre-tax contributions, which might be tax deductible depending on your income and whether you and/or your spouse are covered by a retirement plan at work. The investment earnings grow tax-deferred until you make withdrawals during retirement.
- Roth IRA– It is funded with after-tax contributions, once you reach age 59½,qualified withdrawals, including earnings, are federal-tax-free (and may be state-tax-free) if you’ve held the account for at least five years.
Make sure you consult with your CPA to determine which IRA is most suitable for you.
- Take advantage of catch-up contributions if you are age 50 or older: Once you have reached age 50, you are eligible to make catch-up contributions to your 401K plan or IRA account. The catch-up contribution for 401Ks is $6,000 and for IRAs is $1,000.
- Examine your budget and find areas in which you can reduce spending so that you have more money available to invest and set a goal.
- Don’t spend the extra money, instead, allocate at least 50% of that money to your retirement plan. Every time you get a raise, increase the percentage of your retirement plan contributions.
- Consider delaying Social Security Income: You can start receiving Social Security Income as early as age 62; however, for every year you can delay receiving a Social Security payment before you reach age 70, you can increase the amount you receive in the future.
- Don’t cash out: Early withdrawals will cause you to miss out on valuable compound interest that is essential for building your retirement savings.
- Rollover without fees: If you decide to move your money when switching jobs, ask your former employer to directly transfer the balance to the new financial institution instead of cutting you a check, in order to avoid taxes and penalties.
- Minimize the fees: Investment options with high fees will significantly reduce your retirement account balance. Make sure to consult with your Financial Advisor and know the total fees related to your account; ask him/her to help you pick the lowest-cost investment choices that also match you risk tolerance.
Once you have determined the best way to save money for retirement, remember to be constant and find ways to increase your contributions over time.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Eagle West Group and Cambridge are not affiliated.
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