Light-hearted Guide to Performing a Retirement Savings Health Check
– Understand your savings goal and milestones
– Evaluate your current retirement nest egg size
– Consider amping up your retirement contributions
– Reflect on your potential future tax obligations
– Balance your portfolio to suit your risk tolerance
Plan for a Sunny Retirement: Know Your Savings Goal
Tomorrow’s retirement comfort lies in the lifelong choices we make today. On the road to restful golden years, it’s beneficial to periodically review the state of your retirement stash. Like a doctor’s health check-up, it’s time for a financial wellness evaluation. So, let’s dive into the five uncomplicated steps to analyzing your retirement savings.
Starting point: pinpointing your retirement saving target. You might ask, how much will I need in my later years? A 2021 report from official stats wizards, the U.S. Bureau of Labor Statistics shows that the run-of-the-mill household headed by individuals aged 65 and over spent around $52,141 annually, which translates to $4,345 monthly. Money advice varies depending on your age. As a rule of thumb, it’s advisable to save 15% of your income during your 20s and 30s, boosting it to 20% once you hit your 40s and onwards. Simplified guidelines from Fidelity Investments suggest this:
– Aim to save the equivalent of your annual salary by age 30
– By age 40, strive to have three times your annual salary saved
– Raise the bar to six times your annual salary by the time you’re 50
– By 60, aim to have eight times your salary saved
– By 67, target to have ten times your yearly pay saved.
Remember, your envisioned retirement lifestyle will influence your saving goals. If you dream of a retiree’s life traveling the world, then you’re going to need a bigger boat of savings.
Evaluate Your Retirement Pot of Gold
Once you’ve got a ballpark figure of your retirement requirement, it’s time to review your current savings. Examine funds sitting in retirement accounts such as a 401(k) or Individual Retirement Account (IRA). You can also consider the cash you’ve stashed (keeping your emergency reserve separate). Reflect on how many working years you have until you clock out for good. Is your nest egg going to hatch into a golden goose or a wobbly chick? If it’s more the latter, think about raising your monthly savings quota.
Boost Your Retirement Savings Contributions
Putting cash away into your 401(k) is as simple as buttering toast, thanks to automated payroll deductions. It’s a breeze to earmark pre-tax dollars for your future slippers and rocking chair days. You get to pick the percentage of your earnings that you want to set aside from each paycheck. And if your employer throws in a matching contribution, then you’ve struck gold! In the case of an IRA, you fund it yourself by transferring money into the account. If you’re at the ripe young age of 50 or more, you can contribute extra to your 401(k) or IRA. And if you’ve stuffed your retirement accounts to the max, you can also squirrel away some nuts in a brokerage account for additional retirement income.
Weigh Up Your Future Tax Obligations
Smart saving lies in spreading your wealth across multiple accounts, reaping tax benefits both now and in retirement. Think about dividing your contributions between a 401(k) and a Roth IRA to snatch up different tax advantages. Here’s a quick peek at how retirement accounts get taxed:
– 401(k): Your contributions are tax-deductible, reducing your taxable income today. Though you’ll need to pay the taxman on any future withdrawals. If your 401(k) is your only retirement income, your tax bill could be hefty.
– Traditional IRA: Much like a 401(k), contributions to a traditional IRA are generally tax-deductible. Taxes come due when you draw on the account during retirement.
– Roth IRA: Contributions are not tax-deductible, yet you’re gifted with tax-free withdrawals during retirement. It’s a great way to keep your tax liability in check when working days are behind you. Depending on your income needs, it might even keep you out of a higher tax bracket.
Balance Your Portfolio to Fit Your Tolerance to Risk
Rebalancing your retirement savings portfolio means adjusting your financial ‘buckets’ to line up with your risk comfort level and goals. IRAs and 401(k)s are investment accounts that can accommodate a range of securities such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs). These assets carry varying levels of risk, which is why a diversified range of eggs in your basket is essential.
Generally, taking more significant risks when you’re younger is feasible due to the magic time buffer to bounce back from market ups and downs. As you approach the autumn of your life, a steady and conservative strategy might be a wiser choice. When you’re revisiting your retirement accounts, assess if the spread of your assets still aligns with your comfort level. Maybe you need a rebalancing act.
Retirement Savings Checkup: A Summary
Periodically performing a retirement savings health check lets you examine your financial health and strategy, offering an opportunity to pivot as needed. Consider it as another form of financial upkeep, just like regularly going over your budget and spending. Your long-term goals merit the same dedication.
The same applies to keeping your credit health in check. It’s just as uncomplicated to maintain control of your credit score. If needed, you can adjust your financial habits to boost your credit score. Remember, every step taken today brings you closer to a comfortable retirement tomorrow.
Plan wisely. Save wisely. And retire happily!
