For many of us, the idea of retirement may seem elusive. Some of us are closer than others. No matter what stage of life you are in, if you are not retired it’s important to maintain a focus on saving money or starting a plan if you have not done so already. There are several avenues to save for retirement which may include workplace or individual plans. Consider the options you have and implement a program to save as much as you can with a focus on maximizing your contributions in this order:
- Employer Sponsored Plans – if you are an employee of a company that offers a retirement plan there is an excellent chance benefits are available to you if you save your own money in addition to your employer contributions. Depending on the type of plan in place you may be able to contribute upwards of $19,500 per year (or $26,000 if you are over age 50) notwithstanding any money your employer contributes on your behalf. If you cannot save the full dollar amount, make sure you save as much as you can and definitely at least save the minimum amount your employer will give you to receive the full company match. If you are not doing this, you are leaving free money on the table.
- Individual Retirement Plans – If you are not employed by a company that offers retirement benefits you have the option to set-up individual retirement plans, which are commonly referred to as IRA’s. There are two options for you if you go this route. A traditional IRA allows you to save money on a tax-deferred basis and take a deduction from your income taxes for the contributions you make to your account annually. A ROTH IRA allows you to make after tax contributions to your account. You do not get to take a deduction for your contributions, but your account earnings will grow tax free and when you make withdrawals at some point in the future the earnings and contributions you made over the years will not be subject to income taxes, as opposed to a traditional IRA where your withdrawals will be taxed at ordinary income rates. ROTH IRA’S have become very popular with young professionals and people who anticipate increasing their earnings over time. There are contribution and income limitations to save in your ROTH or traditional IRA accounts so be sure to consult with your financial advisor or tax planner.
- Personal Investment Portfolio – if you have exhausted the first two options, or if you have maximized your contribution limits to both, you may consider setting up a personal investment portfolio to save additional money for the long-term. A personal investment portfolio has no contribution limits or income restrictions. It is simply an account that you are able to fund liberally and have complete access to your funds regardless of age. Any earnings in your account may be subject to capital gains taxes if you take funds out that has appreciated, but this is an excellent option to compliment retirement accounts and accumulate capital to supplement your retirement income when you decide to retire.
A well-coordinated financial plan will incorporate all of your options and your advisor should be able to guide you on the best strategy for your individual situation that best suits your needs based on your goals. If you have not had this conversation with your advisor, or if you have not revisited your plan recently, be sure to do so today to put yourself in a position to become financially independent. Nobody wants to work forever! If you don’t have counsel to help you, give us a call and we would be glad to start the conversation to get you on the right track.