by Jean Miller | Accounting News, News, Newsletter, Retirement, Retirement Savings
If you’re feeling the pressure of playing catch-up with your retirement savings, you’re not alone. In a recent nationwide survey conducted by the National Institute on Retirement Security, 55% of working-age Americans are concerned that financial security in retirement is unattainable. In this article, we’ll explore several strategies to supercharge your retirement nest egg and regain control of your financial future.
Maximize Your Retirement Contributions
If you have access to an employer-sponsored retirement plan like a 401(k), maximizing your contributions is a smart move. In 2024, the annual contribution limit for a 401(k) is $23,000. For those aged 50 or older, an additional catch-up contribution of $7,500 is allowed. Taking full advantage of these limits can significantly boost your retirement savings. Additionally, if your employer offers matching contributions, you can accelerate your savings growth even more.
Automate Your Retirement Contributions
Automating your retirement contributions ensures consistent saving, which can significantly grow your retirement funds over time. Many employers offer automatic contribution increases, typically around 1% annually, which boosts your savings gradually without affecting your daily finances. This approach leverages compounding interest, making it a hassle-free way to secure a more prosperous retirement.
Leverage Work Raises and Bonuses for Retirement
Treat pay raises and bonuses as income earmarked for your future. In other words, if you’re already living within your means, extra money shouldn’t impact your current lifestyle. Instead, allocate these additional funds to your retirement savings and bolster your nest egg while maintaining financial stability.
Diversify Investments
A common avenue of investment is the stock market, and while certain individual stocks can skyrocket and yield significant profits, pinpointing these winners is difficult, even for seasoned investors. Unexpected events can cause a stock’s value to plummet without warning. Instead of risking a substantial portion of your retirement savings on one stock, diversify your investments across various asset classes. Consider options like savings accounts, mutual funds, bonds, retirement plans, and annuities.
Consider Annuity Investments
Annuities are financial products offered by insurance companies designed to provide a steady income stream in retirement. They work by individuals making either a lump-sum payment or a series of payments to the insurance company, which then agrees to make regular payments to the individual. Certain annuities offer a consistent stream of income throughout your lifetime. They help mitigate the risk of retirees outliving their savings.
There are a few reasons to consider annuities. First, they offer a secure harbor for your funds, ensuring consistent returns over the long term. Additionally, growth potential is fueled by accrued interest, so it pays to find the best rates. Finally, the savings are tax-deferred, so tax obligations on the annuity are postponed until you begin withdrawing funds.
by Daniel Kittell | Accounting News, Financial goals, News, Newsletter
Achieving financial stability and building wealth are essential goals for families striving for a secure future. Financial stability means having a reliable income, manageable debt, and the ability to handle unexpected expenses, while wealth building focuses on growing your assets over time. Read on to learn how families can lay a solid foundation for long-term financial success.
Understanding Financial Stability
Financial stability involves having a steady income, keeping debts under control (medical, credit card, and student loan debt), and having an emergency fund to cover unexpected expenses. Ideally, you want to save at least one month’s worth of expenses in your emergency fund before you begin to tackle debt. For families, achieving financial stability means being able to meet daily needs without financial stress and having the peace of mind that comes from knowing you can handle emergencies.
The Importance of Building Wealth
Building wealth goes beyond just saving money; it involves growing your assets over time. Wealth building provides financial security and the ability to achieve long-term goals, such as buying a home, funding your children’s education, or enjoying a comfortable retirement. Wealth also offers the freedom to make significant life choices and the ability to transfer financial security to future generations.
Investing for Wealth Building
Investing is a key strategy for building wealth. Here are some smart investment strategies to consider:
Diversify Your Investment
Diversification involves spreading your investments across various asset classes, such as stocks, bonds, mutual funds, and real estate. This strategy helps mitigate risk because the performance of different investments can vary. By diversifying, you can protect your portfolio from market volatility and increase the potential for returns.
Maximize Retirement Contributions
Take full advantage of retirement accounts like 401(k)s and IRAs. In 2024, you can contribute up to $23,000 to a 401(k), with an additional $7,500 allowed for individuals who are 50 years or older. These contributions not only reduce your taxable income but also benefit from employer matching, which accelerates your savings growth.
Consider Annuities
Annuities can help lessen the risk of outliving your savings by providing a steady income stream in retirement. They offer a secure harbor for your funds with consistent returns and tax-deferred growth, making them a reliable component of an investment portfolio.
The Role of a Good Credit Score
A good credit score will open the door to favorable loan terms, which can significantly impact your financial health. With a high credit score, you can qualify for lower interest rates on loans and mortgages, reducing the overall cost of borrowing. Lenders, including banks, credit card companies, and landlords, assess credit scores to determine an individual’s reliability in repaying debt. Consequently, a higher credit score results in better loan terms and conditions. This can save you thousands of dollars over the life of a loan, allowing more of your money to be invested in wealth-building opportunities.
When the above strategies are implemented – understanding and prioritizing financial stability, paying off debt, investing wisely, and maintaining a strong credit score – families are empowered to create a secure and prosperous future.
by Stephen Reed | Accounting News, Financial goals, News, Newsletter
Retirement should be a time to finally relax and enjoy your golden years, but for many people, this is only possible with careful planning, discipline, and smart financial decisions made during your working years. Below we take a look at some essential tips financially savvy people use to be successful in retirement.
Start Early and Save Consistently
Financially savvy savers know that you need to start early and save consistently in order to reap the most benefits of compound interest. As soon as you can make saving for retirement a regular habit, this should be your goal. By doing so, you can take advantage of the growth potential of your investments and build a substantial nest egg.
Starting Late in the Retirement Savings Game?
If you’re getting a late start in saving for retirement, taking advantage of compound interest is still possible, but it will likely require more focused effort and discipline. The most crucial step to take is to start today. Try to contribute as much as you can to retirement accounts like IRAs and 401(k)s while taking advantage of any matching contributions by employers. You can also delay retirement by a few years if possible, allowing more growth through compound interest. The key when starting late is to practice consistent, disciplined saving and make smart investment choices.
Set Clear Financial Goals
Savvy savers are proactive planners, which means they set clear goals for their money. Take the time to assess your current financial situation, estimate your retirement expenses, and determine how much you need to save to meet those expenses. Set specific, achievable goals to help stay on track and make informed financial decisions. Once you get going, you’ll need to keep tabs on where your money is going and how much it’s growing. Meet with an investment professional at least annually but also after any big life changes—like a new baby or a job transition. You want to understand how those changes could affect your retirement savings plan.
Maximize Retirement Account Contributions
Take full advantage of retirement savings accounts like 401(k)s and IRAs. This includes contributing the maximum allowable amount each year, taking advantage of any employer matches or tax benefits. Additionally, you want to avoid borrowing from your 401(k) account. A 401(k) loan can be risky due to taxes and penalties if you can’t repay the loan. Not to mention, it’s usually not worth the loss of long-term compound growth on the money you borrow.
Minimize Debt
Carrying excessive debt into retirement can be a burden during your golden years, so you’ll want to work diligently to minimize debt before retirement. This might involve paying off credit card balances, mortgages, or other outstanding loans. Reducing debt will decrease financial stress and untangle more resources for enjoying retirement.
Create a Budget and Stick to It
Budgeting is a fundamental tool of financial success. Budgets help to maintain financial discipline and avoid overspending. The financially savvy create detailed budgets that outline their expected income and expenses. They track their spending carefully and adjust their budget as needed to ensure they stay within their means.
Create a Diverse Investment Portfolio with a Long-Term Focus
A well-diversified investment portfolio is a hallmark of savvy savers. Be sure you’re diversifying your investments across various asset classes, such as stocks, bonds, and real estate. This helps lead to more stable and consistent returns over the long term.
Speaking of long-term moves, smart investors play the long game when it comes to investing, and they’re not looking for short-term gains, so they don’t jump from investment to investment with every up and down in the stock market. However, you should also be investing in less volatile wealth building channels, such as mutual funds with a history of growth. Just remember that the key to a successful portfolio of growth is patience.
If you have any questions, or if you’re looking for personalized guidance tailored to your unique situation, don’t hesitate to reach out. Contact me directly for more information or to schedule an appointment. Let’s embark on the journey to a successful retirement together.
by Stephen Reed | Accounting News, Financial goals, News, Retirement, Retirement Savings, Uncategorized
After working for decades to save for retirement, you’re finally ready to retire. This calls for a pivotal shift in focus from growing your investment portfolio to planning how you’re going to live off those savings, possibly for decades to come. With the right strategies in place, you can help make sure your retirement savings last.
Establish Your Budget
First, you need to determine your known expenses in retirement (both needs and wants) so you can build your budget to meet those costs. Some examples include:
- Mortgage payments
- Travel goals
- Debt repayment
- Health insurance and costs
- Any big purchases like a boat or a vacation home
Are you planning to minimize expenses in retirement? Are you able to tap into additional income sources in retirement through avenues such as passive income or a part-time job? Will your spending increase now that you’re not tied to a full-time job? These are just some examples of questions to ask yourself to be sure your assets can reach your goals. It’s important to answer them as honestly as possible. And if you start out with conservative estimates — meaning you plan for greater spending than what transpires — you’ll end up with more flexibility down the road. Of course, don’t forget to factor in extra expenses for unforeseen costs that tend to crop up
Is the 4-Percent Rule Right for You?
First, you need to figure out how many years of retirement you need to plan for. If you’re retiring at age 55, plan for at least 40 years of retirement. If you’re retiring earlier than age 55, plan to live until at least age 95 so you don’t run the risk of outliving your assets. If you’re retiring later than age 55, you won’t need to plan for quite as many decades.
Now that you know approximately how many years of retirement to plan for, you need to think about how much you should withdraw. The “4 percent rule” is typically a recommended starting point. Using this method, you would withdraw no more than 4 percent of your retirement savings. This leaves enough funds in the account to give your investments a chance to grow in future years. Growth is important to help withstand the impact of inflation on your assets.
While a 4 percent withdrawal rate will ensure that your money lasts a good while, a more current trend is to withdrawal just 3% from retirement accounts. This is due to the low returns on fixed income investments. Additionally, a more conservative withdrawal rate will give you more elbow room with your budget in the future.
Playing the conservative game is never a bad idea, and could even strengthen your financial position over time. For example, you can allow your accounts to grow by withdrawing just 3 or 4 percent if you consistently average 5 or 6 percent returns.
Balance Income and Growth
Your portfolio needs to line up with your goals, time horizon, and risk tolerance. This typically means selecting a combination of stocks, bonds, and cash investments that will work collectively to produce a steady flow of retirement income and prospective growth — while also helping to safeguard your money. For example, think about:
- Building a bond ladder: This is a fixed income strategy where investors disperse their assets across multiple bonds with varying maturity dates. This method provides for short-term liquidity to help manage cash flow and also hedge against fluctuations in interest rates.
- Adding dividend-paying stocks to your portfolio: Essentially, each share of owned stock entitles investors to a set dividend payment, which is paid in regular scheduled payments, either in cash or in the form of additional company stock. In this way, they are almost like passive income. They are tax-advantaged and provide protection against inflation, especially when they can grow over time.
- Continuing to Hold Enough in Stocks: To keep up with inflation and grow your assets, you still need to stay in the stock game. While stocks are volatile, insufficiency runs an even greater risk of depleting your nest egg too soon. Your stock allocation should align with your investment objectives and time horizon first, then modified for risk tolerance.
Withdrawal Sequencing Matters
The longer your tax-advantaged retirement accounts have to compound, the better off you’ll be in the long run. Therefore, it’s typically recommended to withdraw from taxable accounts first, followed by tax-deferred accounts, and finally tax-exempt accounts like Roth IRAs and 401(k)s. Of course, like anything with taxes, withdrawal sequencing has a number of caveats and exceptions to consider when it comes to your personal circumstances, but this is a reliable starting point.
Manage Your Money
You can help to preserve the long-term growth of your portfolio by managing your day-to-day finances. This means funding an emergency fund — ideally with at least a year’s worth of expenses. Additionally, you can adhere to the three-bucket school of thought:
- Immediate Bucket: This is where you stash quick-access funds for safekeeping. A high-yield savings account or a money market account fits the bill because the focus of this bucket is not to earn a high interest rate or return.
- Intermediate Bucket: You want the funds in this bucket to grow enough to carry you a little more into the future. You still want to avoid high risk or volatility, so opt for a low-to-moderate risk category that offers a reasonable return on your money — think bonds or CDs. Real estate investment could also fall into this bucket.
- Long-term Bucket: This bucket is for growing investments and outpacing inflation. If you’ve set up your immediate and intermediate buckets properly, you won’t need to touch your long-term bucket for at least a decade. Because the goal of these funds is to outlast you, you need to invest into this bucket more aggressively. Stocks, real estate investment trusts, annuities, etc. provide the most growth potential, so this is the bucket for those investments. It’s important to work closely with the guidance of a financial advisor on this strategy.
by Jean Miller | News, Retirement, Tax, Tax Planning - Individual, Tax Preparation - Individual
The Treasury Department has announced retirement plan contribution limits, which are adjusted annually, for 2019. Because inflation has gone up a bit recently, contribution limits are also going up, which means you can save more money next year.
The maximum pre-tax contribution limit for an Individual Retirement Account (IRA) is increasing to $6,000 in 2019 after a six-year stall at $5,500. An extra $500 may not seem like a big deal, but the investment will compound over time, making the increase especially valuable for younger workers. For example, an investment of $500 annually will amount to an extra $100,000 in retirement savings over 35 years.
Employees who participate in a 401(k) or similar workplace retirement plan can expect an increase from $18,500 in 2018 to $19,000 in 2019. That limit will also apply to 403(b), the Federal Government’s Thrift Savings Plan (TSP), and most 457 plans. As a result of this change, workers can defer paying income tax on approximately $42 more per month.
For those 50 years old and over, catch-up contribution limits remain the same for 2019: $6,000 for workplace plans and $1,000 for IRAs. All of this combined means that savers over 50 have the potential to stash away $32,000 in 2019.
The maximum amount of annual compensation that can be taken into account when determining employer and employee contributions is increasing in 2019 from $275,000 to $280,000. However, highly compensated employees may face additional limits on contributions. Earning more than $120,000 in 2018 may qualify you as highly compensated for 2019 contribution limits, and earning more than $125,000 in 2019 may qualify you as highly compensated for 2020 contribution limits.
If you have any questions or would like to review your retirement plan contribution amounts together, please give me a call at 317.549.3091 or email me to schedule an appointment.
