We always say to plan early for retirement, and to begin saving in the early years of your career. But in reality, many of you didn’t do that, and you’re hoping you have time to play catch-up later.
Well, that time has arrived. For every year that you don’t max out your retirement savings, you’re missing valuable time that can never be recovered. Retirement savings isn’t just about the money you set aside; the power of compounding interest over time is what really helps you work toward financial independence! So take these steps to max out your savings now, and you will thank yourself when you retire.
Don’t miss out on matching funds. Does your employer offer matching funds for retirement plan contributions? If so, make sure you contribute at least enough to reap the full amount of the match every year. Otherwise you’re turning down free money for retirement.
Retain more of your year-end bonus. Do you often earn a year-end bonus? It’s a great feeling to be rewarded for your hard work… until that bonus bumps you into a higher tax bracket. However, you can choose to divert your bonus into a tax-deferred retirement plan, and lower your tax liability.
Open a Roth IRA. If you’ve maxed out your 401(k) contributions for the year, you can still save more for retirement by opening a Roth IRA. The tax structure is different, because you contribute after-tax dollars now and then enjoy tax-free distributions in retirement. Even if you aren’t eligible for a Roth IRA, you can contribute to traditional IRA and then convert the funds to a Roth account.
Consider an annuity. Contributions to an annuity policy will grow with taxes deferred until retirement. If you want to further invest in your future, but without triggering investment gains taxes each year, an annuity might be a good option for you. However, annuities are extremely complex financial products, and you shouldn’t choose one without guidance from a financial advisor.
These are just some of the ways that you can increase your retirement preparedness. For a more detailed analysis of your financial needs, schedule an appointment with us to discuss your future. We can help you put together a retirement income plan that suits your lifestyle.
Portions of this article have been excerpted from “Save Early for Retirement If You’re A High Earner” by Mark P. Cussen, CFP®, CMFC, AFC who not affiliated with LPL Financial.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.
Annuities are long-term investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply.