Retirement is a complex aspect of every worker’s experience. Knowing how to manage your savings, file for benefits, and make the most of it can be difficult, especially in the first few years because you have never done it before, and no one can tell you precisely what your position will be until it occurs.
This is why mistakes are common, and research shows that 61% of Americans fear retirement more than death itself. Having a sound financial plan that will prepare you for the future is essential, so get ready and discover some ways to boost your retirement.
Understanding Contribution Limits
Every year, the Internal Revenue Service (IRS) adjusts the contribution limits for workplace retirement plans such as 401(k)s to account for inflation. In 2024, the 401(k) limit was $23,000, or $30,500 if you were over 50, for a total cap of $69,000 when employer matches and profit sharing were included. This maximum is universal and must be spread out across as many employer-sponsored plans as you have, as they are typically tax favored.
The IRA Advantage
Individual Retirement Accounts (IRAs) are a popular addition to employer plans, but you cannot contribute as much as you want. In 2024, the maximum contribution is $7,000, with an additional $1,000 catch-up payment for those over 50.
There are two types of IRAs: traditional IRAs allow immediate tax deductions and Roth IRAs provide tax-free withdrawals in retirement, so choosing the optimal option for you is critical.
Self-Employed Options
Retirement accounts are not only for regular workers; self-employed individuals have a variety of retirement savings alternatives, such as SEP-IRAs. These allow contributions of up to 25% of earnings, with a $69,000 ceiling in 2024. Non-employer matched 401(k)s provide comparable benefits and include additional catch-up contributions for individuals over 50.
Self-employed people have the advantage of being able to establish a different type of retirement account for each enterprise they embark on, allowing them to optimize retirement savings while preserving investing control.
Manage your assets during retirement
The most important thing one can do to prepare is to mix the sorts of investment accounts such that some are tax-advantaged and others are not. This will help to increase contributions in some cases, ensuring that there is more money to grow, while also allowing some money to be withdrawn out without incurring tax penalties.
While this may appear redundant and that the best solution is for all accounts to be tax-advantaged in order to ensure that more money grows, having two types of accounts will benefit if tax rates alter. They also provide flexibility in managing taxes in retirement.
Another key step is to ensure that one’s investment portfolio is adequately diversified, including various accounts and asset allocation schemes.
This will ensure that the overall portfolio risk is minimized while also allowing you to invest some accounts in required assets that will deliver a higher payout if they perform effectively. It will also allow you to adjust the investment plan for each account to the unique goals you are currently pursuing.
Once all of the accounts have been established and you are nearing retirement, the final step is to choose how the funds will be utilized and when the money will be withdrawn from each account.
Keep in mind that many tax-advantaged accounts will have required minimum distributions (RMDs) enforced by the IRS, which you must comply with in order to maximize your tax situation and produce a more predictable income throughout retirement.