Retirement might not be in your purview yet, or perhaps you’ve been dreading all the time and effort that goes into planning it. Whatever the case may be, retirement planning doesn’t have to be as cumbersome as it may seem. There are some hidden costs that can ruin your retirement savings and plans, but with these retirement strategies, you should be well on your way to kicking back on the beach.
Costs that Bankrupt Your Retirement
Taxes. First and foremost, you should be informed that most of your income is taxable. If you have secured a retirement savings plan, your withdrawals will be taxed. While there are some exceptions, the same is applicable for pensions. Your Social Security income will be taxed by the federal government. At the state level, there are 13 states that tax Social Security income, so it’s important to factor in those deductions if you reside in one of those 13 states. Alternative retirement savings plans like Roth IRA or 401(k) might provide some tax relief as withdrawals from such accounts are not taxed.
Long-Term Care. It is reported that 70% of Americans over the age of 65 will require long-term care. From assisted living arrangements to nursing home needs, the costs for such care can be excessive. A home health aide averages $52,624 alone, and averages upward for nursing homes. Investing in long-term care insurance can save you money. Finding and securing a long-term care insurance policy by your mid-50s is ideal to offset paying premiums for an extended period, but still young for approval and potentially health-based discounts on premium costs.
Lifestyle Changes. Upon retirement, you may take that time to travel. Or perhaps invest in something you’ve always wanted, but couldn’t, such as a jet ski or a pet. It is important to (1) be honest with yourself about your lifestyle choices and preferences (i.e., eating out, going to concerts or events, etc.) and (2) be prepared for unexpected expenses (i.e., medical emergencies, automotive issues, family events, etc.) by overestimating your finances for extra financial cushion.
Strategies for Retirement
Calculate Your Retirement Income. The first and most important part of planning for retirement is determining your monthly income. There are many factors that go into calculating an accurate representation of your retirement life versus your working life (i.e., shifting priorities, more time to do things you want to do, etc.). Other factors include economic-based influences, such as taxes, inflation, and the job market, as well as the percentage for which you save. The best thing you can do to prepare is to find resourceful articles and/or consult a professional to determine the best path to deciding a number suitable to your lifestyle needs. Utilizing a 401(k) calculator can also give you a jumpstart to your retirement planning strategies.
Find a Savings Plan that Suits Your Needs. Retirement planning includes savings plans, such as 401(k) plans and researching 401(k) plans companies that best align with your retirement planning. There are other savings plan options aside from traditional 401(k) plans, such as Roth 401(k), 403(b), 457(b), Simplified Employee Pension Plans, and IRAs. Knowing the available plans, your lifestyle needs, and the advantages of each retirement planning accounts is key to successfully
Traditional and Roth 401(k), 403(b), 457(b), and SEPs are all employer-sponsored retirement accounts. Each plan provides different maximums for deposits and withdrawals, provide immediate tax benefit and deferral of income taxes (traditional 401(k), 403(b), 457(b)) or tax-free withdrawals (Roth 401(k), 403(b), 457(b)). Most employers will match a percentage, if not all, of the funds you contribute and/or profit-sharing benefits. The IRS allows you to contribute funds to multiple employer retirement plans. Like the traditional and Roth 401(k), 403(b), and 457(b) accounts, the IRA works similarly except it is solely the individual’s contributions. SEPs provide a larger employer contribution limit than traditional and Roth retirement accounts. Savings Incentive Match Plan for Employees (SIMPLE) IRA accounts also provide a larger individual contribution limit than traditional and Roth IRA accounts.
Offering 401(k) plans to your employees and providing the resources necessary to determine their best option can assist with greater employee retention and recruiting top talent. VensureHR can provide 401(k) plans and other competitive employee benefits for businesses of all sizes. Contact us today to see what suite of employee benefits best suits your employees’ needs.
Source: What Are the New Retirement Plan Contribution Limits for 2020?