How ready are you for retirement? At SENB Bank, we help people of all ages plan their retirement. And if you’re looking for a place to retire, Iowa was named “best in the U.S. for retirees” by Blacktower Group. In this article, we’ll help you level up your approach to savings, whether you have access to a workplace-sponsored retirement plan or are going it alone. If you have questions about any of our retirement tips, our Wealth Management team is here to help.
Focus on the step(s) you can take today.
Whatever your age, however much you already have saved (or not), even if the task seems impossible—set aside your concerns. You can only start where you are, and any steps you can take now are better than doing nothing. Here are some ideas:
- Open an Individual Retirement Account (IRA). If you don’t have access to a workplace retirement plan, or want to supplement your 401(k) with an additional savings account, IRAs can be a good option. Check out our IRA Counseling services if you need help choosing an account.
- Automate your savings. Set up recurring transfers or paycheck withholdings. That way you’re “paying yourself first” and your retirement savings will grow without you having to think about it.
- Take comfort in compound interest. When you save for retirement in an interest-bearing account, every dollar you deposit will grow by x percentage of interest and then that interest will become part of your balance and earn more interest. That’s how your retirement savings grows over time.
Take advantage of any company match on your 401(k) or 403(b).
If your employer offers a 401(k) or 403(b) plan, you can contribute pre-tax dollars from your paycheck. In addition to helping you save for retirement, these plans have the benefit of reducing your overall taxable income for the year.
As of 2021, the annual contribution limit for 401(k) and 403(b) plans is $19,500. If you are 50+ you can make an additional “catch-up contribution” of $6,500, for a total of $26,000/year.
Another advantage of these plans is the employer match, in which they will contribute what you do, up to a certain percentage of your salary. Not every employer offers this, but if yours does you should contribute at least enough to get the full match. Otherwise, you’re leaving “free money” on the table.
Optimize your tax savings.
Whether or not you have access to a 401(k) or 403(b) plan, you can increase your tax savings by opening a traditional and/or Roth IRA. If you don’t have an employer-sponsored plan, an Individual Retirement Account (IRA) will provide the same tax savings by letting you contribute pre-tax dollars. A Roth IRA is a nice complement to a 401(k) or Traditional IRA plan, as you can enjoy tax-free withdrawals in retirement instead of tax savings now. By having more than one type of tax-advantaged retirement account, you can optimize your tax savings.
Are you a solopreneur? Open a Simplified Employee Pension (SEP) or Solo 401(k).
Do you work for yourself or freelance on the side while holding a full-time job? You can contribute up to 25% or $58,000 of your net self-employment income to a SEP account. Solo 401(k)s have the same contribution limits as employer-sponsored plans. So, what’s the difference?
There are advantages to both options; however, one striking feature of the Solo 401(k) is that you can contribute as both the employer and the employee. We recommend discussing your options with a personal financial consultant to decide which is best for you.
Put your savings on autopilot.
When you contribute to an employer-sponsored retirement plan, your contributions are automatically withheld from every paycheck. This puts your savings on autopilot—you don’t have to think about it or remember to schedule a contribution. You also even out your risk by purchasing stocks on a regular schedule whether the market is up or down. This is known as dollar-cost averaging and helps you avoid emotional decision-making such as selling just because the market is down.
It’s best to take this approach to your other savings accounts, too. Schedule automatic transfers between your checking and savings accounts for the days you get paid or whatever interval fits your budget.
Save any extra money you receive.
Whenever extra or unexpected money comes your way, don’t just spend it; try to save all or most of it instead. Give yourself a small splurge and put the rest into your retirement account. If you receive a raise at work, increase your contribution to your retirement plan. And so on. Remember that compounding interest will make that amount worth a lot more to you in retirement than whatever you could spend it on now.
Have an HSA? Save it for retirement.
If you are in a high-deductible health insurance plan, you can use a Health Savings Account (HSA) to save pre-tax dollars for eligible out-of-pocket expenses. But that’s not the only benefit HSAs offer…
- You can invest a portion of your HSA assets in the stock market to potentially earn interest and grow your balance faster.
- After age 65, you can use HSA funds for any expense, not just healthcare-related, without penalty.
So if you can afford it, max out your annual HSA contributions ($3,600 for individuals and $7,200 for families) and use other cash to pay for healthcare costs. That way you can use your HSA as another investment vehicle for retirement.
Learn more about saving for retirement!
At SENB Bank, we offer financial products and services that are Smart. Easy. Notably Better. Wherever you are in your career, and whatever your savings goals, we can help you get there with a variety of Wealth Management Services and Personal Savings Accounts. Contact us today to learn more or visit your nearest location in the Quad Cities and beyond.
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