4 Retirement Planning Tips for the New Year
New Year, new you, they say—so what better time to revisit your retirement planning strategy? You can make a great New Year’s resolution to prioritize retirement planning, especially if you are within ten years of clocking out for the last time. And given the financial issues so many of us have experienced from the pandemic, 2022 would be the perfect time to rejuvenate your retirement planning strategy.
To aid you in starting the year off right, I would like to revisit four retirement planning tips you might consider implementing for this bright new year.
Evaluate your current financial situation
To kick off your retirement saving strategy in the new year—or anytime, for that matter—you have to see where you currently stand in your finances. Looking at the balances of your retirement accounts and how much you contribute to each account per month is a great start.
Ensure you review what you’re invested in, and don’t forget to consider the underlying fees—yes, retirement accounts have fees. Knowing all this information is vital as it helps you optimize the growth of your retirement portfolio while minimizing how much of your nest egg is seeped away by maintenance and trading costs.
One common mistake we see with new clients: they forget about retirement accounts held at their former employer.
Money left behind might not be allocated as well as it could be, and could also be racking up fees—so this is a great time to evaluate if rolling over your funds into a rollover IRA or adding the funds to your current 401(k) is a better financial planning option versus keeping your assets at the prior employer’s plan.
Confirm your retirement number
If you don’t know what you need to retire comfortably, it’s time to figure it out! While we are obviously enormous advocates for obtaining this number through a comprehensive financial plan, getting a rough estimate is relatively easy to do with the current boom in financial technology.
You can use a retirement calculator to estimate the amount of total savings you will need based on when you plan to retire, how long you think you will live, and how much you think you will spend each year in retirement.
Once you have input all of your retirement parameters, the retirement calculator will give you a figure for how much you need to save per month to reach your goal, depending on how much you already have saved for retirement.
You need to be realistic; if the estimated savings per month is entirely out of your budget, see if you can make some changes.
For example, maybe you could delay retirement for a few years, increase your income by working part-time in retirement, or decrease your expenses to dedicate more money to your retirement savings.
Select the right retirement account
If your employer offers 401(k) matching, that’s a benefit that you don’t want to miss out on: it’s basically free money. (And as financial planners, we don’t utter that phrase too often.)
For 2022, the 401(k) contribution limit has been increased to $20,500. While most employers only match a percentage of your salary for your 401(k) contributions—usually 3-4% but sometimes higher—be sure to meet that percentage at least.
Roth and traditional IRAs are also great retirement savings vehicles. While the contribution limit for 2022 remains $6,000, these accounts offer significant tax advantages. Plus, you will also have more control over how your money is invested than you would with a company-sponsored plan.
Nonetheless, both of these types of accounts can help your retirement savings compound interest over time, growing your funds exponentially and in a tax-efficient manner.
Make regular contributions
Now that you have a plan and your accounts in place, it’s time to start contributing to your retirement accounts—and not just once. Making regular contributions over time is the best way to ensure your nest egg has the potential to grow exponentially.
The easiest way to make contributions each month is by setting up automatic transfers from your bank account or paycheck to go directly to your retirement savings accounts. With employer-sponsored 401(k)s, you can choose how much money is automatically taken out of each paycheck you receive.
For IRAs, you can set up an automatic transfer with the institution that holds your retirement account. Just make sure that you then actually allocate the funds to specific investments—otherwise, it’s basically just sitting in a cash alternative earning very little interest!
Putting a plan in place or reviewing your current one is the best way to progress your retirement savings in 2022—and beyond.
If you’re worried about saving for retirement, contact us at Felton & Peel Wealth Management. We will be able to walk you through your savings options so you can retire comfortably and enjoy your golden years.
Call us today to get started!