Between all the barbecues, baseball games and beach trips that are iconic to the summer, be sure to save some time for retirement planning. While you're kicking back and enjoying the warm weather, take a moment to review how you're setting aside money for the future.
Whether you open a savings account on your own, invest through an employer-sponsored plan or use a combination of options, you need to regularly assess whether your current strategy works best for your goals. Here are four tips for reviewing and updating your plan for building a nest egg:
Maximize your employer-sponsored savings
If you've enrolled in a 401(k) or other plan through your employer, make sure that you're getting the most out of employer-match opportunities. The tax-deferred growth is a sizeable benefit, but there's no reason that you shouldn't expand your savings potential. Review your plan's details to determine if you're putting aside enough to get the full advantage of your employer's match contributions.
Protect your accounts from inflation
Even if you started saving for retirement when you were in your 20s to maximize your earnings from compounded interest, you have to consider inflation. As your spending power declines over the years that you're setting money aside, the amount that you need to have the retirement you want increases. Here are some strategies to help you offset inflation:
- Invest in stocks. Although the stock market has more risk, the possible gains are great for protecting against inflation because of the high returns. Even as you get closer to retirement and adopt a more conservative approach, it's a good idea to keep your stock allocation from accounting for too little of your total investments.
- Increase your 401(k) and 403(b) contributions. If you're investing less than the $17,500 annual maximum for these accounts, consider raising your contributions by 1 percent to expand your nest egg while lowering your income tax.
- Take advantage of the "Saver's Credit." Depending on their filing status, married individuals with an adjusted gross income of $60,000 or less can receive 10 percent, 20 percent or 50 percent tax credits for their retirement savings contributions.
- Use "catch-up" contributions. In the year you turn 50, you're allowed to add an extra $5,500 per year to your 401(k) on top of the standard limit. For individual retirement accounts, you can save an additional $1,000.
Evaluate your withdrawal plan
Part of retirement planning is determining how you'll access your funds when you reach the golden years. Talk with your financial advisor to figure out how much of your money you should withdraw each year to live comfortably and achieve your other goals. Generally, experts suggest using 4 percent of your total assets each year to stretch your funds.
Also, plan for which assets to withdraw from first. Typically, you want to tap into your taxable accounts before your tax-deferred ones, as you can still take benefit from the tax-free growth even in retirement.
Invest in long-term care insurance
Medical expenses can become more expensive as you age, and some of the costs you're likely to face aren't covered by Medicare. Long-term care bills are among those exclusions, and those costs can quickly drain your savings. Look into coverage for these expenses.
The Pension Protection Act of 2006 allows you to guard your nest egg against steep medical bills by using new types of hybrid life insurance policies and long-term care annuities. You can get tax-free benefits or leave a tax-free benefit for your heirs.
For more information on effective wealth management strategies, contact Landmark Bank.
Investment products and services are not FDIC insured, not insured by any federal government agency, not a deposit or bank obligation, not financial institution guaranteed, subject to investment risk, including potential principal loss.
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