Too many people give up on their dream retirement simply because they started too late (or so they think). One of the greatest opportunities to change your future to what you wish it to be is … to start today! Occasionally, we experience a client that wishes to retire at age 65 but has saved little. We acknowledge where they are, and we provide guidance that will help them realize a better future and life - but is does require their participation on a plan that will be effective for them.
Let’s look at the most obvious savings point – employer retirement plans. If you work for an employer that provides a deferred savings plan such as a 401(k) Plan, you are in luck. Meet with your employer or human resource officer and determine when you can begin participating in the plan. If you are already enrolled in the plan but want to make changes to your savings rate (called your “deferral amount”) there are certain windows of time that must be observed.
If you are age 50 or older, you can take advantage of “catch-up” provisions within the law that can significantly reduce your current taxes and increase your savings exponentially. For 2021, the “catch-up” contribution amount is $6,500. Think about it. You can save an additional $540 per month on a tax-deferred basis. This will add up to a considerable increase in retirement savings over a ten-year period! If invested prudently, you will experience even greater potential growth until retirement.
The next step is to review your investments within the plan. Are you sufficiently allocated and diversified in your selection of investments? Don’t simply invest in the same manner as other employees. Invest in yourself by spending some quality time to understand the particular options and how you feel if the performance was not as projected. How would your retirement plans be affected if the performance was lacking?
By electing to save your maximum amount to your employer plan, you have essentially placed your goals on auto-pilot. You will automatically be saving money each pay period and it is a little more difficult to obtain the funds if an impulse to buy is experienced.
Now, the really good news. Your employer-provided plan matches a certain limit of your contributions each year. This is money you will receive in your account that helps you grow your retirement savings. Let’s assume that your employer matches up to 5% of your salary (assuming you defer or invest at least 5% of your salary to the plan) and your total compensation is $60,000 per year. This means your employer will contribute $3,000 (or $250 per month) to your retirement account each year. If you work at least ten years you will have gained another $30,000 plus potential growth for retirement support!
If you are self-employed, you have a number of options that will benefit you if you started late saving for retirement. We will discuss these options in a future article.
Take the initiative today to set your course for retirement to be your best years ever! If you have questions about your employer’s plan account, retirement strategies or the tax impact on your cash flow to and through retirement, contact us to provide clarity and construct a retirement plan that works for you.
401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be
subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.
Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial
advisor for more information. Diversification and asset allocation do not ensure a profit or protect against a loss.
This is a hypothetical example for illustration purpose only and does not represent an actual investment. Neither
Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these
matters should be discussed with the appropriate professional.