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 Jean Miller | Accounting News, News, Newsletter, Retirement Savings, Uncategorized
Health Savings Accounts (HSAs) are well-regarded tools for managing healthcare expenses, but the advantages of HSAs extend beyond the scope of medical bills. In this article, we’ll explore how these tax-advantaged accounts can offer a range of benefits and opportunities outside of qualified medical expenses.
Triple Tax Benefits
Contributions to an HSA are tax-deductible, which effectively reduces your taxable income. Furthermore, the funds in an HSA grow tax-free, and when money is withdrawn for qualified medical expenses, it remains tax-free. This triple tax benefit creates a powerful savings engine.
Retirement Savings
The main objective of an HSA is to save for medical expenses, but it can also be used to save and invest for retirement income. At age 65 you are able to withdraw money from your HSA for any reason and avoid the typical 20% early withdrawal penalty for non-medical expenses. While you will owe income tax on these withdrawals, having the option of using those funds penalty-free gives you some flexibility and financial cushion in retirement.
Investment Opportunities
When you contribute to your HSA, those funds remain tax-advantaged and can be invested in various assets such as stocks, bonds, mutual funds, or ETFs. Overtime, your HSA can grow into a substantial financial asset, earning a solid return on investment and enhancing your financial security in retirement. Furthermore, unlike other retirement accounts such as 401(k)s and IRAs, HSAs do not require Required Minimum Distributions (RMDs) once you hit a certain age (currently age 73). This flexibility makes HSAs an appealing option for individuals who wants to continue to let their money grow and compound.
Portability
An HSA is portable, meaning it remains with you even if you change employers or retire. This flexibility allows you to continue growing your account balance over the years to use for future healthcare expenses, even if your employment situation changes.
Education Expenses
HSAs can be used to cover qualified education expenses without penalty, including tuition, fees, books, supplies, and required equipment. This extends to the account holder’s spouse and dependents at eligible educational institutions. Note that certain expenses, such as room and board, don’t apply, and individual HSA providers may have differing rules and requirements. If you use funds from an HSA account to pay for eligible education expenses, be sure to keep receipts and records in case of an audit.
Wealth Transfer
If you’re a high-net-worth individual or you simply make enough income elsewhere to not need to use your HSA, you can let it grow and compound, and leave it to a beneficiary. If the beneficiary is your spouse, they can continue using the HSA as if it were their own account. If the beneficiary is someone other than your spouse, like a child, they will need to take a taxable distribution from the account.
by Pete McAllister | Accounting News, Debt, News, Retirement, Retirement Savings
Saving for retirement is an essential financial goal, but there are certain circumstances in life when it may be best to push pause on retirement contributions. By recognizing these situations, you can better allocate resources and make informed decisions. Below we discuss the times in life when slowing or pausing retirement savings goals could be the right call.
Debt and Financial Stability
If you are burdened with high-interest debt, such as credit card debt or student loans, it’s important to allocate more funds towards debt repayment before saving for retirement. Reducing debt obligations will improve your financial stability and free up resources for retirement savings in the future.
Job Loss or Career Transition
If you’ve lost your job, it’s a good idea to pause retirement contributions temporarily until your financial situation has improved and you are once again steady in the workforce. When you decide to restart retirement savings, be sure to take advantage of any 401(k) matches that your new employer may provide.
Likewise, when you are in a career transition, whether that be changing your career path or starting a new business venture, it might be necessary to redirect funds to supporting your career goals or acquiring new skills in your industry.
The above situations might call for a pause on retirement savings, but not a full stop. If you are in a position of needing to pause retirement savings, it’s essential to have a plan to resume saving once the transition is complete and you are back on your feet.
Major Life Events and Unforeseen Circumstances
Life happens, and sometimes we’re faced with a financial hardship. Unexpected medical expenses and major life events, such as having a child or making a cross-country move, can impact your finances. During these times you may need to adjust your retirement savings strategy to meet these needs. Pausing or slowing down retirement savings temporarily can provide flexibility while protecting some financial stability. Once you’re back on your feet, you can revisit your retirement savings strategy and make adjustments accordingly.
The above examples are all valid reasons to readjust your financial priorities and push pause on saving for retirement. By recognizing these situations and making informed decisions, you can maintain a financial balance and step up your retirement savings game once you’re in a less financially tumultuous phase of life.
