By: Ann Arceo, AAMS®
Saving for retirement is a big goal for most of us, but it’s also one that is easy to push aside especially when you're young and retirement feels far away. No one wants to reach their later years and have to worry about outliving their savings, but it can be hard to prioritize retirement when you’re trying to buy a house, pay down debt, save for college and all the other priorities that seem to compete for our resources.
You don’t have to take an all or nothing approach to saving. Making a plan, saving what you can, increasing it over time, and being consistent, can all go a long way in helping prepare for that chapter of your life.
Make a Plan
Not having a plan for the future is stressful. It can also be stressful if you’re feeling behind in your savings, and you haven’t taken the time to face your financial life and set clear goals. Working with a Certified Financial Planner can give you clarity and peace of mind about your future. If you’re close to retirement, going through the comprehensive financial planning process is crucial. A planner can help you understand what it will take to retire when you want with the lifestyle you imagine. If you're younger, a planner can provide important financial education and get you started on the right path. If working with a financial planner isn’t possible right now, then stay focused on saving constantly for retirement (even if it’s a small amount with the goal of eventually saving 15% of your income), pay down debt, stick to a budget, and build an emergency fund.
Save through Work or On Your Own
According to the Employee Benefits Research Institute, people who feel the most confident about their retirement are those who participate in an employer sponsored plan such as a 401k. This makes sense as enrolling in a 401k is simple and saving is automatic through payroll deductions. If you don’t have access to a retirement plan through work, there are still plenty of easy ways to save. There are IRA’s (Individual Retirement Accounts) or Roth IRA’s. Here is a helpful article on setting up an IRA.
Roth IRA’s don’t provide a tax break now, but you won’t be taxed on the funds you withdraw in retirement either. It’s a great option especially when you’re young and starting out in your career. There are income limits and tax considerations so it always helps to do your research. If you work for yourself and want to save more than what’s allowed in an IRA, you have additional options such as a SEP IRA, Simple IRA, or Solo 401k.
Once you open an account, set up a monthly automatic contribution and investment. You’ll be saving for the future without having to think about it.
Take Advantage of Your Employer Match & Over 50-Catch Up Contributions
If you’re lucky enough to work for an employer that offers a company match on your retirement contributions, take advantage of it. It’s a great way to increase your savings and reach your goals faster. As you get closer to retirement, you also have the option to save more in your retirement accounts and saving aggressively in those last few years can pay off.
For 2021, the maximum amount you can contribute to your 401k is $19,500 if you’re under 50. You can contribute an additional $6,500 if you’re over 50 for a total of $26,000. You can also save an additional amount to your HSA and IRA.
Maximize Your HSA
An HSA is a health savings account that can help you pay for medical expenses with tax free dollars. In order to have an HSA, you have to have a high deductible healthcare plan. These plans may not work for everyone especially if you are dealing with medical issues and need to visit the doctor frequently. If you’re relatively healthy and are comfortable with a high deductible insurance plan, then an HSA can be a great savings tool.
You contribute to the account with pre-tax dollars, and your savings grow as there is no use-it or lose-it feature. You do need to use your account to pay for qualified medical expenses (or you lose the tax benefits and have to pay a penalty), but you can also use your account to pay for medical expenses in retirement. It’s not the first way to save for retirement, but it can certainly supplement what’s in your IRA or 401k. It can be a nice option to pay for those inevitable medical costs later in life.
Reimagine Retirement
If retirement is fast approaching, and you haven’t saved as much as you hoped, then it might be time to reimagine what retirement will look like. Meeting with a financial planner can be crucial in this situation to help you understand your options. You might want to consider pushing back your retirement date, working part time in retirement, or downsizing your lifestyle.
Your options may not be as drastic as you imagine, but without a clear plan it’s hard to know for sure. Most of us wouldn’t head out on a road trip without a map (okay iPhone) and a plan of how to reach our destination. Life works in much the same way. Don't let major milestones sneak up on you. Take control of the financial future you envision.