Retirement is a goal we all want to achieve. But getting to that finish line takes some work. How can you plan well to try to meet your retirement goals? And what are recommended strategies for managing that money so you work towards growth and preservation over time?
Whether you’re just starting to save or have been putting money away for years, Jeff Hunter, Wealth Strategist at TD Wealth, offers the following suggestions.
Evaluate your situation
As with any type of planning, it’s always important to start with a clear goal in mind. Your age, your income, and how much you have already saved will help you determine how much, and how quickly, you should put money away. It’s also important to think about when you're aiming to retire and the type of lifestyle you want to enjoy once you are finally retired.
Start by calculating the amount you'll need to save to live the lifestyle you hope to have in retirement. Then, evaluate your current savings and any future income sources like Social Security, pensions, annuities, proceeds from selling your home or business, rental income, or an inheritance.
One of the generally accepted "golden rules" is you should aim to save at least 15% of your pre-tax income. That's probably a good starting point for many but will certainly vary based on each person's unique financial circumstances. The next step is to invest that savings in the right types of vehicles and plans to help it grow for the future.
Take advantage of workplace retirement plans
If your company offers a traditional 401(k) or 403(b) plan, that's typically a good place to start saving money. In a traditional retirement plan, your contributions are made with pre-tax dollars so you won't pay any income taxes on your contributions. Anything you contribute will then grow tax deferred (i.e., without being subject to the burden of taxes) until you begin making withdrawals in retirement. In 2024, the maximum amount that an employee (under age 50) can contribute to a 401(k) or 403(b) plan is $23,000. If you're not able to set aside the maximum, find out if your employer offers a company matching program and contribute at least that amount. That way, you won’t leave any money from a company matching program on the table.
Another option is investing in a Roth 401(k) or 403(b) plan. With a Roth plan, your contributions are made with after-tax dollars. Although you forego the upfront tax deduction, you are then able to access your contributions and any subsequent earnings on a tax-free basis in retirement, provided you follow the rules for taking the money out. Determining when your tax bracket is expected to be higher (now or in retirement), will help you determine whether the traditional or Roth option is a better fit for you.
Consider adding a health savings account to the mix
A health savings account (HSA) is another tax advantaged account that can be used to save and pay for any of your current or future qualified medical expenses. HSAs are available to almost anyone enrolled in a high-deductible health plan, so you'll want to check with your employer to see if they offer such a plan. Any contributions to an HSA are tax-deductible and the funds in the account can also be invested and grow tax-free. Additionally, any withdrawals from the HSA to pay for your qualified medical expenses are also tax-free. This makes HSAs a valuable tool for anyone looking to save money for their future medical expenses while also receiving some attractive tax benefits.
In 2024, you can contribute up to $4,150 to an HSA if you have health coverage just for yourself or $8,350 if you have health coverage for your family. At age 55, individuals can contribute an additional $1,000.
One additional benefit of an HSA is that after reaching age 65, you can access your funds on a taxable basis for any reason without a penalty just like a traditional IRA.
Start early, but if you can’t, there are other options
Starting early can make a powerful difference in growing your retirement savings. That's because the earlier you start saving, the more time you have for your money to compound and grow. For example, let's say you begin saving $6,000/yr. at age 35 and continue doing so for the next 30 years until you are 65. If we assume an average annual return of 6%, you will have accumulated approximately $474,000 in total savings at age 65. If instead, you were to begin your savings journey 10 years earlier at age 25 and quit contributing at age 55 (again saving $6,000/yr. for a total of 30 years), you would have approximately $849,000 at age 65. This represents an increase of almost 80% in your total savings by simply starting 10 years earlier.
If you're getting a later start and need to ramp up your retirement savings, you may be able to take advantage of catch-up contributions. If you're over age 50, you can contribute an additional $7,500 to your 401(k) or 403(b) plan, for a total of $30,500 this year versus the $23,000 cap for someone under age 50. The catch-up contribution for a traditional or Roth IRA allows you to contribute an extra $1,000 per year for a total of $8,000 in 2024 versus the $7,000 limit applicable to the under 50 crowd. Taking advantage of these catch-up contributions can really help maximize the growth of your savings.
Finally, talk to a qualified financial professional about the pluses and minuses of investing in the stock market. Investing is risky and you must be prepared for market volatility and losses, but you may want to consider the long-term returns of investing in the markets compared to more conservative savings options like bank deposit accounts and CDs.
For more on personal finance topics
If you have more questions about personal finance topics that matter to you, visit the Learning Center on TD Bank’s website. You can find out more information about TD Bank's services at td.com.
We hope you found this helpful. This article is for informational purposes only and is based on information available as of May 2024 and is subject to change. This content is not intended to be used or acted upon with respect to any client's specific circumstances.
For specific advice about your unique circumstances, consider talking with your qualified professionals. TD Bank, TD Wealth and their employees do not provide legal, tax or accounting advice.
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