Approaching retirement should be an exciting time in your life! You have traveling, time for hobbies, and enjoying your golden years to look forward to.
But, for many, retirement is a source of stress and anxiety instead. Have you saved enough? Do you need to keep working part-time? How will you pay for unexpected medical bills?
Creating a retirement plan early and reviewing it often is key to alleviating some of this stress. Here are a few questions to consider when checking up on your retirement plan:
How much do I need to save?
The average retirement age is 67. And, most investment advisors recommend assuming a lifespan of 92 years for men, 94 for women. Using these guidelines, you need about 8x your annual salary to retire without any major lifestyle changes.
Experts recommend saving 10% of your annual income for retirement during the first decade of your career. After that, increase your contributions to 15% of your annual income.
How much am I allowed to save?
Most retirement accounts have a limit on how much you can contribution each year. Different retirement savings accounts have different rules.
The current maximum annual contribution to a 401(k) plan is $18,000. The maximum contribution to an IRA is $5,500 per year if you're under age 50. There are also catch-up provisions that allow people age 50 and over to save more in both IRAs and workplace savings plans.
Check into how much you're currently saving and if you could be setting aside more.
How much risk am I taking on?
If you don't review your retirement plan, you risk losing a big chunk of it.
Typically, the younger you are, the riskier the investments in your retirement portfolio. This is because the potential for higher returns outweighs the risk of losing money. When you're young, you have enough time to make up any losses before retiring.
As you get closer to exiting the workforce, that balance shifts. Talk with your plan administrator to reassess your risk tolerance at least every 10 years. Ensure that you're not taking on more than is advisable for your situation.
Where should I save?
There is a wide variety of ways to save for retirement. A few of the most popular are IRAs and 401(k)s.
With a 401(k), your employer directs the account. Contributions are deducted from your paychecks.
An IRA account is an individual account that provides tax advantages. A regular savings account does not offer these advantages.
There are two types of both IRAs and 401(k) plans, Roth and Traditional. The basic difference is when you have to pay the taxes on the account.
With a traditional retirement account, you pay the taxes when you withdraw the funds.
With a Roth account, you pay the taxes upfront, when you put the money into the account. This makes them especially valuable to younger savers.
If your questions about retirement weren't answered, ask your employer's Human Resources personnel or give us a call at (608) 326-3500.
Peoples State Bank, Member FDIC
