Saving for retirement is a necessity. However, young people are often preoccupied with their careers, buying a home, raising a family, or trying to make those high rent payments. You may not be thinking about retirement now. And there may be a good reason why—68% of private industry workers had access to retirement plans. But there is still a percentage of Americans who don’t have any retirement savings.
Fortunately, it’s never too late to start saving for retirement. Many financial planning strategies can put you on the path to retirement. To start, here are a few retirement financial planning tips.
Take Advantage of Double Retirement Plan Contributions
Some workers can sign up for plans that double their plan contributions. These workers include:
- Healthcare workers
- Nonprofit employees
- Anyone in the public sector
This is called a catch-up provision and can be added to different retirement plans, such as 457(b) and 403(b). Remember that there may be contribution limits, such as $22,500 in 2023 for 457b plans. You can always talk to a financial advisor for more information.
Company-Matched Retirement Plans
As stated previously, most companies offer retirement plans for employees. But some retirement plans offer a feature called company matching. Your employer will contribute a certain amount to your retirement plan, depending on your annual contributions. This is a free and easy way to maximize your retirement savings. Again, remember that many retirement plans have contribution limits.
Sign up for an IRA
The self-employed, freelancers, and small business owners have limited retirement options since an employer isn’t providing or contributing to their plan. But independent workers still have options, one being an individual retirement account (IRA). Anyone can create and contribute to an IRA, including employees with a 401(k).
There are various types of IRAs. Traditional IRAs are popular since contributions are tax-deductible, there’s no income ceiling, and there are no contribution limits. If you’re an employee of a small business or freelancer, your employer can create a SEP IRA in your name.
Roth IRAs are ideal for those in a certain income bracket. They’re not tax-deductible, but you can take tax-free withdrawals. Simple IRAs are also available to small businesses that don’t have the means to offer a 401(k).
Take Advantage of Tax Credits
Did you know low-to-middle-income earners qualify for a retirement tax credit? The credit percentage you earn can be as low as 10% or as high as 50%. The qualifications depend on your tax filing status and your income.
- Married and filing jointly: $68,000 or below ($2,000 maximum credit)
- Head of household: $51,000 or below
- Single or married and filing separately: $34,000 ($1,000 maximum credit)
Remember that these qualifications change every year. You can always talk to a tax planning professional if you need more help.
Move to an Affordable State
The high cost of living makes it even more difficult for Americans to save for retirement. However, you can put some extra money in your pocket by moving to an affordable and retirement-friendly state.
It can be difficult to know where to move to. First, you can consider state taxes. Moving to a state without extra taxes can save you nearly $2K a year, which can go to retirement savings. Some costs and other factors to consider include:
- Housing and rent
- Job market
- Minimum wage
- Poverty rates
Even if you don’t move to an affordable state now, it’s something to consider when you get older. The low cost of living can stretch your retirement dollars.
Sign up for a Health Savings Account
Healthcare costs are expected to rise in the next three years. Even though this is bad news, this is more of a reason to sign up for a health savings account (HSA). An HSA is an account that sets aside money for healthcare costs. This not only financially prepares you for a medical emergency but also reduces your taxable income, so you save money on your taxes.
Understand that an HSA has contribution limits. Individuals can contribute up to $3,850, and families can contribute up to $7,750. Those over the age of 55 can contribute an additional $1,000. Contributions can grow over time, distributions are exempt from taxes, and the funds in the account are 100% tax-deductible. And when you reach 65 years old, these funds can be used for anything—not just medical expenses.
Create a Budget
Everyone should have a budget, but budgeting is even more vital to retirement savings. Your budget should include vital expenses, such as rent/mortgage, utilities, groceries, and other bills. From here, plan how much you should save for retirement. Ideally, the average person should save 10%-20% of their monthly income. But even less than that is better than not saving.
Pay Down Debt
By the time you retire, you should be debt-free. That’s why it’s best to pay down any debt you have. This includes any debt—car, credit card, student loans, mortgages, and any other big loans you may have. Your retirement years should be filled with fun and relaxation. The last thing you’ll want is to owe money.
Have Emergency Savings
Saving for retirement is vital, but don’t forget about emergency savings. If anything, you should prioritize emergency savings before even considering a retirement account. Ideally, you should save about three-to-six months of your monthly income. Your emergency savings will cover any surprise costs and fees that you may have. Once you have enough in your emergency savings, separate these funds from your retirement account. This way, emergency expenses won’t interfere with your retirement account.
Do You Need Help With Financial Planning for Retirement?
Saving for retirement takes some serious financial planning. While this advice can apply to nearly anyone, some people may need more help. This is where we come in.
Our employees have over 35 years of experience in various financial fields. We offer tax planning services to ensure you don’t spend more on your taxes. Our business services include remote CFO and bookkeeping. Our firm also consists of legal tax experts. If you have a big tax bill, we offer tax resolution services.
Contact us now to see how we can help you.