Financial Wellness: Planning For Retirement
It’s never too early – or too late – to start planning for your retirement. The more time you allow for your savings to grow, the bigger the nest egg you’ll have when it’s time to cash in. Here’s how to get started on planning your retirement.
Set a target number
First, determine how much you’ll need to save to live comfortably and independently throughout your retirement. Experts advise taking your current living expenses and multiplying the number by 400 to identify the amount you’ll need to sustain yourself based on a 4% return.
Choose your retirement account strategy
Next, you must select a place to keep your retirement savings. There are many options to consider, some of which you may already have if you are, or have been, employed. Here’s a quick review of the two most common retirement accounts:
1) 401(k)
If you’re employed, you likely have a 401(k) that’s working toward collecting money for your retirement. Take advantage of this retirement tool by maximizing your contributions. Also, many employers match a portion of (or all) contributions you make, which is basically free money, to help your retirement savings grow, tax-deferred.
2) IRA
There are two popular kinds of Individual Retirement Plans (IRA): conventional IRAs and Roth IRAs. A conventional IRA will let your money grow, tax-deferred, but withdrawals are taxable. A Roth IRA does not feature tax-deferred growth, but qualified withdrawals are not taxed. Like a 401(k), some employers match a portion of (or all) contributions. But, federal limits exist on how much money you can add to your IRA each year.
The table below briefly summarizes each retirement vehicle’s pros and cons for easy comparison.
Features | 401(k) | IRA | Roth IRA |
Matching Funds | Yes | No | No |
Tax-Deductible | Yes | Depends on income, tax-filing status and other factors | No |
Tax-Deferred Growth | Yes | Yes | No |
Taxable Withdrawals | Yes | Yes | No |
Maximum Yearly Contribution (2023) | $22,500 | $6,500 | $6,500 |
Maximum Yearly Contribution Age 50+ (2022) | $30,050 | $7,500 | $7,500 |
After you’ve selected your retirement fund, you’ll also need to choose somewhere to invest.
With a bit of work and a lot of planning, you’ll have your future secured in the best way possible. Want more help saving for your future? Elevate offers free budget counseling for all our members. Contact us to learn more, and find more like this on our MoneySmart Tips blog.