To make sure you’re on track, evaluate your retirement accounts.

Now is the perfect moment to assess whatever retirement account(s) you may have. If not, you should open one right away. This article raises the stakes for 2021 and 2022 by assisting you in evaluating your individual financial condition as you approach retirement.

Why You Need to Save for Retirement

Putting time and the power of compound interest on your side will have the most impact on your retirement investing. In plain English, the earlier you begin saving for retirement, the quicker you’ll see results and realize your objectives.

For instance, if you begin saving $500 per month at age 25 and receive 7% interest each year, you will have amassed around $1.2 million by the time you are 65. If you start saving the same way at 35 instead, you’ll contribute just $60,000 less (10 years x 12 months x $500), but you’ll have less money saved up in the end—roughly $567,000. That is compound interest at work.

Only 37% of American adults believe their retirement assets are on track to meet their needs, according to the Federal Reserve Bank. Do your best to join them if you aren’t already. You’ll need or desire to stop working one day. Nothing is worse than realizing you can’t afford to when the time comes.

Examine your retirement accounts as a next step

Optimize the 401(k) Match of Your Company

Is your employer willing to match your contributions to a 401(k) plan? Are you maximizing the match for your business? A 401(k) match from your company is essentially free money for the future. If your employer matches up to 3% of your pay and you earn $60,000, for instance, it translates to an additional $1,800 that you didn’t have to labor for. If you’re not utilizing your employer’s match to its maximum potential, go to the plan administrator and make changes.

Invest the Maximum Amount

Your 401(k) contributions are made using pretax money. In other words, up to the annual maximum, which is $19,500 for 2021 and rises to $20,500 in 2022, your contribution reduces your taxable income. An additional $6,500 can be contributed if you’re 50 years old or older.

Create an IRA

Consider opening and funding an individual retirement account (IRA), which also provides tax benefits, if you don’t already have a 401(k). Your ability to fund both accounts could even further boost your retirement savings. If you’re under 50, you can contribute a maximum of $6,000 to both standard and Roth IRAs. In 2021 and 2022, people over 50 can contribute an extra $1,000 to regular and Roth IRAs.

Similar to a 401(k), a regular IRA enables pretax contributions, whereas a Roth IRA allows you to invest after-tax money. But if you wait until you’re 59 1/2 and the account has been open for at least five years, you can withdraw money from your Roth IRA without paying taxes or penalties.

Action Items and Additional Resources

Make a straightforward assessment of your retirement condition by following this easy plan:

  • Make sure you’re approaching retirement at a pace appropriate for your age. For instance, it’s recommended that you save three times your annual wage by the time you’re 40. Do you own that or are you moving toward it? If so, think about how you may reduce your discretionary spending to raise your retirement contributions.
  • Consider your choices if you don’t have a retirement account. Your employer might provide a 401(k). If so, consider enrolling and making the maximum amount of contributions, or at the very least, the amount required to receive your employer’s match. Open an IRA if your workplace doesn’t provide a 401(k) or other retirement plan.
  • Consider boosting your retirement savings if you have a 401(k) or starting a regular or Roth IRA if you don’t already have one or don’t have access to one.

We will discuss how to deal with old 401(k) plans and IRAs that are collecting dust on your metaphorical financial library in the following piece in this series.


Add Comment