Regardless of your current stage in life, consider retirement as an important factor. Whether you just embarked on your career, or you’re nearing the ‘golden years’, your choices can significantly influence your future. Here, we explore methods to optimize the gains from your retirement account.
UPPING YOUR CONTRIBUTIONS
If financially viable, boosting your retirement account’s contributions can yield significant long-term benefits. Here’s the outline of the maximum contribution caps for 2019, as per the newly revised IRS regulations:
• For 401(k), 403(b), Thrift Savings Plan and certain 457 schemes -$19,000,
• For IRA’s – $6,000,
• For extra contributions for individuals over 50 – $1,000
The 2019 contribution limits have been raised, facilitating Americans to accelerate their savings. However, this only proves beneficial if you’re capable of making the full contribution. If not, readjusting your budget should be the first step. Examining your budget might help identify areas for potential cutbacks.
PROFITING FROM EMPLOYER MATCHING FUNDS
If you’re fortunate enough to work for an employer offering a retirement contributions matching policy, seize this opportunity. Each organization has its own structure, and it’s their discretion to offer matching contributions. Typical examples of matching arrangements include:
• 50 cents to every dollar for the first 3-5% you contribute,
• An average 2.7% of your remuneration,
• Matching up to the first 3-5% you contribute
In my case, I worked for a company that provided the last option. Looking back, I regret not contributing the highest possible amount during my early years. I beseech you not to repeat my mistake.
SEP IRA
For those self-employed, a SEP IRA is an advantageous retirement account option. It resembles a traditional IRA, but allows for higher contributions than a Roth IRA or Traditional IRA. You can presently deposit up to 25% of your salary or $52,000 (whichever is lower) into a SEP IRA and won’t be taxed until you withdraw funds during retirement. This is an effective route to boost retirement benefits and save more.
INVEST IN YOUR FUTURE SELF
Consider contributing to your retirement accounts as opposed to buying holiday gifts for loved ones or yourself. While it sounds unconventional, the logic is that most presents become obsolete quickly. If we diverted that expenditure into retirement accounts, we could potentially enjoy a more comfortable retirement and perhaps retire sooner – thanks to the power of compounding!
To illustrate, suppose you and your spouse typically spend $600 on mutual holiday gifts every year. Starting at age 30, you invest this money in a retirement account. With an average annual interest rate of 7%, after 35 years, at age 65, your retirement account could have an additional $88,280. This could let you retire 1-2 years ahead of schedule, which seems like a far superior gift.
PICK YOUR RETIREMENT AGE WISELY
Your chosen retirement age can greatly impact your retirement benefits. You can start receiving full Social Security benefits at 66, but if you delay till 70, the benefits increase to 132%. For a Roth IRA or Traditional IRA, you can begin tax-free withdrawals at 59.5 and continue contributions till 70.5, given you earn an income during this period. However, it might be more financially prudent to retire at 70, especially if you’re heavily reliant on Social Security benefits.
CHOOSING YOUR RETIREMENT STATE
Upon retirement, where you reside becomes quite significant, due to varying state-wise taxation of Social Security income. Thirty-seven states don’t tax this income. Therefore, researching which states have favorable property, state, and local tax rates, plus taxes on other retirement income, can help maximize your retirement benefits.
ACTIONABLE STEPS
In summary, your retirement account’s present workings tremendously affect your future. The key strategies involve increasing contributions to the max permitted, leveraging employer matching schemes, opening a SEP IRA if you’re self-employed, or forgoing present indulgences for future stability.
If you’re approaching retirement, having already made these wise moves, kudos to you! Just remember to evaluate the best retirement age to maximize your benefits, and choose a tax-friendly location to live during retirement.
Incorporating retirement planning into your regular financial routine ensures maximal benefits from your retirement accounts. What effective methods have you discovered to enhance your retirement accounts?
