Do you feel confident that you are saving enough for retirement? If not, here are five ways to boost your retirement savings.
1. Know your numbers
Many people have no idea how much they actually need to save to meet their retirement goals. If you don’t know your individual numbers, you might assume you need a huge amount… which could lead to fear that you might not be able to save what you think you need to save… which could lead to paralysis.
So how do you discover your numbers? Online do-it-yourself retirement calculators are extremely simplistic and do not give you an accurate idea of how much you will need to save. For example, typical online calculators do not take into consideration such things as:
- How investment returns will vary from year to year, and the effect that “sequence of return” risk could have on your retirement lifestyle…
- One-time financial goals, like a 50th wedding anniversary celebration…
- The effect of taking Social Security benefits at various dates…
- How much risk you are actually willing to take with your investments.
Pinnacle Advisory Group uses state-of-the art retirement and Social Security analysis to provide a more-realistic projection of how much you need to save. Our wealth managers can also review your cash flow, spending, and taxes to help identify potential sources for additional retirement savings. You should run the numbers again every year.
When you know your numbers and know how you will be able to save what you need to save, it will give you confidence. You may need to save less than you think! I have had the joy of working with new clients who came in worried about how they could save enough to retire, just to discover when we ran the numbers that they had already saved more than enough.
2. Consider a Roth IRA or traditional IRA contribution
For 2019, single taxpayers can make a deductible IRA contribution if their modified adjusted gross income is less than $64,000. A married taxpayer filing jointly who participates in an employer retirement plan can make a deductible IRA contribution if your combined MAGI is less than $103,000. If your spouse participates in an employer plan but you do not, you can make a deductible IRA contribution if your combined MAGI is less than $193,000.
For 2019, single individuals with modified adjusted gross income (MAGI) of less than $122,000 can contribute to a Roth IRA. A single individual with MAGI between $122,000 and $137,000 can make a reduced contribution. Married taxpayers who file jointly can contribute to a Roth IRA if their MAGI is less than $193,000 and make reduced contributions up to a MAGI of $203,000. If you are over those income limits, you still might be able to make a non-deductible contribution to a traditional IRA, and then roll that contribution over to a Roth IRA at a later date. Speak with your Pinnacle wealth manager to see what contribution strategy might work best for you.
3. Take advantage of additional catch-up contributions
In 2019, an employee can contribute up to $19,000 to an employer retirement plan like a 401(k) and potentially another $6,000 to an IRA (depending on income). But did you know that you can give more if you are age 50 or over? Once you celebrate your 50th birthday, you can contribute an additional $6,000 to an employer plan and an additional $1,000 to an IRA every year.
4. Contribute to a Health Savings Account (if your employer offers one)
HSAs are medical savings accounts available to employees participating in high-deductible health plans. For 2019, single taxpayers can contribute up to $3,500 per year and married taxpayers can contribute $7,000, plus those over age 55 can contribute an additional $1,000. HSA contributions reduce your Federal taxable income when made (state tax laws vary). The money in a Health Savings Account continues to grow tax-deferred, just like a 401(k) or IRA. If used to pay for qualified medical expenses, withdrawals are tax-free. Withdrawals for non-medical expenses before age 65 are subject to ordinary income tax and a 10% penalty. Once you are 65, you can withdraw the money for non-medical expenses subject to ordinary income tax, just like an IRA. HSAs can be a great way to save extra money for retirement, especially for medical expenses.
5. If you are a business owner, get a second option on your company retirement plan from a pension third-party administrator
Each 401(k) plan must meet complex rules to make sure that employees are treated fairly, but that does not mean that everyone has to be treated equally. Some pension administrators are better than others at identifying opportunities for business owners to contribute more to their retirement plan. It never hurts to get a second opinion.
If you or someone you know is concerned about planning for retirement, a Pinnacle Advisory Group wealth manager would be happy to help cut through the confusion and provide you with some retirement peace-of-mind.
