Posted in Triplett & Carothers on August 1, 2024

Retirees need to understand that the quality of their lives in retirement will depend on how well they have attended to each of the four pillars prior to and during retirement.

Most people would agree that what financial freedom looks like in retirement is the ability to do the things you would like to do on a sufficient budget. However, according to the U.S. Department of Labor, only half of Americans have calculated how much money they will need to retire. In 2020, more than a quarter of those employed in the private sector with access to a defined contribution plan, such as a 401(k), chose not to participate. On average, Americans spend about 20 years of their lives in retirement.

The message is one financial experts can strongly stand behind: employees need to get into the habit of saving for retirement as early as possible.

Here are 10 things you can do right now to obtain a financially secure retirement:

1. Save, save, save  

   If you are already in the habit of saving, keep going. If you haven’t started yet, now is the time. Make saving for retirement a priority and start small, gradually increasing the amount you save. The advantages of starting early are clear. For example, if you saved $6,000 a year, over the course of 35 years, you will have accumulated a tidy sum of more than $800,000 (assuming your money grows at 7% annually).

2. Know how much you will need

   To maintain your preretirement lifestyle, experts estimate that you will need between 70% and 90% of your current income. Take charge of your finances now by planning ahead. To help you with your planning, contact the Department of Labor to order two of their publications: “Savings Fitness: A Guide to Your Money and Your Financial Future“ and “Taking the Mystery Out of Retirement Planning.“

3. Participate 

   … in any retirement savings plan offered by your employer, such as a 401(k) plan. Some of the benefits of contributing include lowering your taxable income, receiving a boost from any additional contributions your company may make and having automatic deductions that make contributing easy to do.

4. Look into your employer’s pension plan. 

   If you are covered under the plan, ask for an individual benefit statement to see how the plan works and if there are any penalties if you leave the company. Check to see if your spouse has a similar plan and if you will be covered by that plan as well.

5. Basic principles of investment

   … should guide your financial decision-making. Find out how your pension plan or savings account is invested. Know what investment options are available to you. You will want to consider diversifying your position to reduce risk and improve your return on investment. Your investment mix will change over time depending on your goals and financial circumstances.

6. Leave it alone  

   Once you have placed your money in a retirement account, do not withdraw from it. By doing so, you stand to lose tax benefits and you will have to pay early withdrawal penalties. By reducing the amount in the account, you are losing out on any interest you may have earned over time.

7. Ask and you may receive 

   If your employer does not have a savings plan, ask for them to start one. There are a number of basic savings options available that would be easy for your employer to implement and for you to take advantage of.

8. Do it yourself

   You are able to invest up to $7,000 a year in your own individual retirement accounts or Roth IRAs starting in 2024. The amount of contribution is even higher if you are over 50 years of age. In retirement, the after-tax value of your withdrawal will depend on inflation and the type of IRA you choose. IRAs can provide a straightforward way to save. You can set it up so that an amount is automatically deducted from your checking or savings account and deposited in the IRA. Select the one that best matches your needs.

9. Check the Social Security

   … retirement benefits calculator available on their website to get an estimate of what you can expect to collect in retirement. Monthly Social Security payments on average replace an estimated 40% of preretirement income. This represents a sizable portion of your retirement income, so make sure you have the best information available for when to retire.

10. Don’t be afraid to ask questions

    Seek practical advice from your employer, your bank, your union or your financial adviser. Ask questions and make sure you understand the answers. The information you receive can help you make decisions now.

Retirement is not an endpoint. It is an exciting new chapter in your life filled with new possibilities. Make sure you are financially ready for it. Your future self will thank your responsible younger self for planning now. Contact us for more details on how to prepare for your retirement.

Reach out to Roz Carothers and her team at Triplett & Carothers to learn more.

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