Saturday September 30, 2023
Retirement Planning Tips
Most individuals, especially those nearing retirement, require some type of financial planning prior to retirement. Inflationary pressures increase the price of goods and services and may significantly affect the value of your retirement savings over time.
While Social Security payments can be a valuable resource that assists many individuals throughout their retirement, they are not meant to be the only source of retirement income. The Social Security Administration reports that the average monthly retirement benefit for recipients as of February 2023 is about $1,781.63, which may fall short of sustaining a comfortable retirement lifestyle.
A recent survey found that Americans holding retirement accounts believe they will need approximately $1.8 million for retirement. For instance, a 65-year-old who retires with $1.8 million saved could expect to receive a retirement income of $72,000 per year. The average U.S. retirement account, however, held $113,000 last year while accounts of those 65 and older held an average of $233,000.
Given these factors, it is crucial for individuals to familiarize themselves with financial matters and learn how to save more effectively for retirement. Here are some tips and resources that may help.
Start Saving Aggressively
If your employer offers a retirement plan, such as a 401K, it is advisable to contribute enough to at least capitalize on a company match, if available. If your finances allow you to, you may want to consider contributing even more. In 2023, you can save as much as $22,500 in a 401(k), or $30,000 including the catch-up contributions for those who are 50 or older.
If you do not have a workplace plan, think about opening a Traditional or Roth IRA. Both are powerful tax-advantaged retirement savings accounts that let you contribute up to $6,500 annually, or $7,500 when you are 50 or older. If you are self-employed, consider a SEP-IRA, SIMPLE-IRA or an individual 401(k), all of which can help reduce your taxable income while putting money away for retirement.
Additionally, if you have a high deductible health insurance policy with an annual deductible of at least $1,500 for self-only coverage or $3,000 for family coverage, you should consider opening a health savings account (HSA). This is a tool that can be used to set aside funds pre-tax, which will lower your taxable income. The money in the account will grow tax-free and if the money is used for eligible medical expenses, the withdrawals are tax-free too. After age 65, withdrawals for nonmedical purposes are treated as though they are from a traditional retirement account.
Pay Off Debts
If you have debt, it is best to reduce it as much as possible. Consider working with a non-profit credit counseling agency that provides free or low-cost advice and solutions. The counseling agency could also help you set up a debt management plan. To find a credit counseling program or agency, check with your financial institution or credit union. You may also request a referral from your local consumer protection agency.
However, it is important to exercise caution when choosing a credit counseling organization. Reputable credit counseling organizations should send you information about their services at no cost. Prior to choosing a credit counseling organization, it is advisable to research the organization with your state's attorney general office and local consumer protection agency. This will allow you to review any complaints and confirm licenses the companies may be required to have depending on your state.
To help you educate yourself on financial matters like retirement planning, saving, investing, health care, annuities and more, a great resource is the Retirement Savings Education Campaign – Saving Matters, provided by the United States Department of Labor. You can access the educational material at savingmatters.dol.gov.
For information on Social Security, visit SSA.gov/retirement. The Social Security website provides links to benefit calculators and access to your personal Social Security account to help you figure out your future earnings at different retirement ages.
You may also consider hiring a financial advisor to conduct a financial assessment. Costs for these services will vary between $150 to $300 per hour, but this can be very beneficial to help you set up a retirement plan you can follow. You can search online for financial advisor directories and websites dedicated to finding fee-only advisors in your area. Alternatively, you may seek recommendations from friends and family who have previously used financial advisors.
Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living" book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization's official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.