Are you concerned you might have gotten a late start on your retirement savings? You’re not alone. Over 60% of Americans feel they are lagging in their retirement savings efforts.
The good news? It’s never too late to start saving for your financial future.
In our blog, we’ll look at various ways you can begin to catch up with your retirement savings efforts. As Roseville retirement planners, we focus on helping individuals create comprehensive retirement plans that often include ways to bolster their retirement savings efforts, even if they have started a little late in life.
#1: Maximize Retirement Savings Accounts
For the most part, gone are the days when you would work for one company for your entire career and then receive a guaranteed pension payment for the rest of your life. While a few companies and government agencies still have pension plans, most businesses provide tax-deferred retirement savings options, such as 401(k)s, to their employees.
Rather than making funding the retirement plan the company’s responsibility, it is now the employee’s responsibility, although companies may make matching contributions. This dramatic change started in 1974 when the Employee Retirement Income Security Act (ERISA) was passed.
Within a few years, there was a massive shift from defined benefit plans to defined contribution plans that made employees responsible for retirement savings. The good news is that these savings accounts were funded with pre-tax dollars, and investment returns were taxed until they were distributed out of the accounts.
- These contributions can reduce your annual taxable income, leading to partial funding by tax savings. Savings in these accounts are not taxed until they are withdrawn to fund lifestyles during retirement when your tax bracket may be lower.
- The compounding effect plays a significant role. Since taxes on investment gains are deferred, the money that would have been paid in taxes remains in the account, contributing to its growth. Over time, this can significantly increase the amount of money accumulated in the account.
- Another component is the disciplined savings habit that it encourages. Contributing regularly to a tax-deferred retirement account can help build a substantial nest egg over time, which is crucial for a comfortable retirement. It provides a structured way to save for the future, helping you stay on track with your long-term financial goals.
Regardless of age, you should consider maximizing your contributions, especially if you need to catch up with your savings efforts.
Here’s a look at the 2024 contribution limits.
- 401(k)/403(b)/457/Thrift Savings Plans: For 2024, you can contribute up to $23,000 if you’re under 50.
- IRA (Traditional and Roth): The contribution limit for both traditional and Roth IRAs is $7,000 in 2024
- SEP IRA/Solo 401(k) for the self-employed: These plans allow you to contribute significantly more. In 2024, the limit is up to 25% of your compensation or $69,000, whichever is less. Solo 401(k)s have a similar limit but also allow an additional $23,000 as an employee contribution.
- Health Savings Account (HSA): If you have a high-deductible health plan, contributing to an HSA is wise. In 2024, the limit is $ 4,150 for individuals and $8,300 for families. HSAs offer triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free distributions for qualified medical expenses.
Listen to our newest podcast episode: Important Age Milestones of Your Retirement Timeline.
Here’s an example of how your contributions can help to lower your taxable income:
Let’s say your annual income is $125,000, and you contribute $10,000 to your 401(k) in 2024. Your taxable income would be reduced to $115,000. This means you only pay income taxes on $115,000 instead of the total $125,000, which can lead to significant tax savings.
The actual tax savings would depend on your tax bracket; for instance, if you are in a 24% tax bracket, this reduction in taxable income could save you $2,400 in taxes for the year ($10,000 contribution x 24% tax rate).
It’s important to remember that 401(k) contributions have annual limits set by the IRS, and any contributions above these limits would not be eligible for the tax deduction in that year.
#2: Leverage Catch-Up Contributions
If you’re over 50, the IRS allows you to make additional contributions to your retirement accounts, aptly named “catch-up contributions.” This is a terrific opportunity to accelerate your retirement savings. Here’s the breakdown:
- 401(k)/403(b)/457/Thrift Savings Plans: For 2024, you can contribute an additional $7,500
- IRA (Traditional and Roth): The catch-up contribution limit for both traditional and Roth IRAs is $1,000 in 2024
- Health Savings Account (HSA): In 2024, the catch-up contribution limit is an additional $1,000.
#3 Improve Your Savings Habits
While there are many things you can do to improve your savings and spending habits, we’ve listed five of the more common tactics that you can use to help boost your retirement savings efforts in Roseville:
- Automating contributions to your retirement account directly from your paycheck ensures consistent savings without remembering to transfer funds. This habit makes saving effortless and helps promote steadier growth in your retirement accounts.
- Gradually increasing the amount you save as your income grows can significantly impact your retirement savings. Consider boosting your contribution rate with every raise or bonus to maximize your savings potential without impacting your current lifestyle quite as much.
- Spreading your investments across various asset classes may reduce risk and optimize returns over time. Make sure your retirement portfolio includes a mix of stocks, bonds, and other assets suited to your risk tolerance, and your retirement timeline may enhance growth potential. If you aren’t sure how best to do this, connect with a Roseville financial advisor who can provide you with assistance and guidance.
- Don’t “set it and forget it.” This may lead to lost opportunities, especially during times of market volatility. It’s crucial to assess your investment portfolio periodically to ensure it aligns with your retirement goals and risk tolerance. Adjusting your investment choices based on market changes and personal circumstances can keep your retirement plan on track.
- Educating yourself on financial planning can lead to better savings habits and improved investment decisions.
About Bulman Wealth Group
At Bulman Wealth Group, we’re passionate about helping you craft the retirement you’ve always dreamed of. We understand it’s not just about stashing away savings or picking suitable investments. While those are important, there’s more to the story.
We’re here to guide you through five critical areas of retirement planning: your investments, income strategies, tax considerations, health care preparation, and legacy planning. These elements are crucial in shaping a retirement that’s as unique and fulfilling as you have always dreamt it would be. Ready to learn more about our comprehensive retirement planning in Roseville? Connect with us for an introductory call.
