How much money will you need to retire? Simply put, it costs more to live longer.
However, most people underestimate how long they may live. If you base your retirement plan on assumptions that are too conservative, you run the very real risk of outliving your money. And assumptions that might have made sense a decade or two ago may now be outdated largely due to rising healthcare costs and the impact of inflation and taxes on your retirement income.
Knowing how much to save for retirement is extremely important, but complex to calculate. Your plan should reflect your lifestyle goals and risk tolerance and take interest rates, market fluctuations, and healthcare costs into consideration.
Whether you haven't started saving for retirement—or simply haven’t saved enough—don’t get discouraged! The adage is true: it’s never too late to begin saving or to save more. Even if you can only put a small amount away each month in a qualified retirement plan account, like a 401(k) or IRA, consider doing so now. The sooner you start, the sooner you can put the power of tax-deferred compounding to work for you.
Let’s say you begin contributing $200 per month to a retirement account where earnings grow on a tax-deferred basis. Assuming an annual investment return of 8%, the value of your savings in a tax-deferred account will potentially grow to $34,768 after 10 years, compared to $31,753 in a taxable account.* That’s an additional $3,015 you don’t have to contribute! And if you increase your monthly savings amount over time, your retirement assets have an opportunity to really add up.
Plus, because you’re over 50, you can take advantage of catch-up provisions in your 401(k) or IRA. Catch-up contributions allow you to contribute an additional $6,000 in 2019 to a 401(k) for a maximum contribution of $25,000 ($19,000 + $6,000) or an additional $1,000 to an IRA (for a total annual contribution of $7,000 ($6,000 + $1,000).
If you'd like to learn more about planning for retirement or other important milestones in your life, contact the office to schedule a time to talk.
*The lump sum shown after taxes is based on a 24% marginal tax rate and doesn’t take into account the possible change in tax bracket that might occur due to a lump sum distribution of the taxable amount, nor does it take into effect any applicable tax penalties.
This hypothetical investment result is for illustrative purposes only and should not be deemed a representation of past or future results. Actual investment results may be more or less than those shown. This does not represent any specific product.
This communication is designed to provide accurate and authoritative information on the subjects covered. It is not however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought. Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty.