Saving enough money for retirement is a big job, but you don’t have to go it alone

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If you’re like the millions of Americans who are retired or nearing retirement, you might be sleeping with your financial security. With the cost of everything from gas to groceries rising and the Federal Reserve raising interest rates to tame inflation, bond prices have fallen and the stock market is facing huge volatility. Is.

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Amidst all this uncertainty, Congress still believes the best way to solve America’s retirement savings crisis is to amend the Securing a Strong Retirement (SECURE) Act of 2020. The SECURE Act was originally created to address an uncomfortable fact. While 68% of workers have access to a retirement plan at work, only 51% participate, according to US Department of Labor,

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The new update — known as the “Secure Act 2.0” — expands some of its signature benefits to people who are saving for — or want to — retirement and to those who already Tapping your 401(k) and IRA nest eggs may or may not happen soon.

The SECURE Act 2.0 will require most employers to automatically enroll full-time employees in their retirement plans and automatically increase their contributions each year. It will also enable more part-time workers to participate in their employer’s plans.

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But if you’re already saving for retirement at work, these changes aren’t particularly revolutionary. In such a situation, how will the retired savers benefit? If you are between the ages of 62 and 64, you can add up to $10,000 in annual “catch-up” contributions. Outside this age limit, your catch-up provision will be limited to $6,500 in 2022.

Catch? All catch-up contributions to 401(k) plans from 2023 will be treated as after-tax Roth contributions. This means that these contributions will not reduce your taxable income. The good news is that you will never have to pay taxes when you withdraw these Roth contributions.

The other “big benefit” of Secure Act 2.0? Beginning this year, you won’t need to start taking required minimum distributions from your 401(k) plans and traditional IRAs until age 73. (The original SAFE Act raised the age from 70 to 72). This age increases to 74 in 2029. This increases to 75 in 2032.

As good as these benefits are, they are not a panacea for solving America’s retirement crisis. The hard reality is that neither the government nor your employer is in the business of making sure you’ll have enough money to retire. So you have to take matters into your own hands.

It’s your job to determine how much money you’ll need during retirement, estimate where that money will come from, and how much you’ll need to withdraw from your retirement accounts each year.

And, if it looks like your retirement savings may be depleted sooner than you wish, here’s what you might need to do about it:

1. Calculate Your Retirement ExpensesThere is a common cliché that you will need 60% to 80% of your current income to meet your expenses during retirement.

Don’t believe it. You may want to buy a second home when you retire. Or travel a lot. Don’t forget health care expenses – a year of long-term care can cost $100,000 or more.

Therefore, it is better to underestimate how much money you will need than to underestimate it. There are many free and low cost tools that can help you with this. For example, spring can help you make better decisions with your retirement plans; you need a budget Helps you prioritize everyday expenses and become more objective about your spending.

2. Estimating Your Retirement Income Sources: Next, you need to figure out whether all the income you will receive during retirement will pay for your desired retirement expenses, or will be reduced.

Some of this will come from Social Security. How much? find out by installing Your own online Social Security Administration (SSA) account, The SSA pulls data from tax returns to tell you how much you’d receive each month if you retired before or after your full retirement age (ages 66 or 67 for most people).

If you don’t want to work during retirement, the rest of your retirement income will either come from a pension (if you’re one of the lucky few who has one) and your bank, 401(k), IRA, and taxable investment accounts. .

3. How much of your nest egg will you need to spend each year? Estimate how much money you’ll need to withdraw from your nest egg each year, both as a dollar amount and as a percentage of your savings. Assuming that the investment will increase the total value of your retirement assets by about 5% per year and you always withdraw the same amount every year, how long will it take for your savings to be completely depleted? If under 20, you may have to make some tough choices, either now or later.

4. Best Solution: Maximize Contribution: It’s a fact: The amount you contribute regularly to any investment account will play a huge role in determining how big that account can be compared to where your money is invested.

So if you have a long way to go—a decade or more—before you retire, the best way to increase your chances of long-lasting your retirement nest egg is to put as much as you can in your 401(k). Contribute as much. ) or other retirement plan.

In 2022, you can contribute up to $20,500 in combined pre- or after-tax contributions to your 401(k). If you’re over 50, you can make an additional $6,500 in ketchup contributions. If SECURE Act 2.0 is passed in its current form, you’ll be able to contribute $3,500 more if you’re between the ages of 62 and 64, although starting in 2023 all catch-up contributions will be tax-free. The latter will be classified as a Roth contribution.

The more you contribute, the more you will benefit from company matching contributions. The more money you have in your account, the more you’ll be able to take advantage of the tax-deferred growth potential of a diversified portfolio of stock and bond investments.

5. Keep investing in stocks as far as possibleThere’s an old theory that says that as you get closer to retirement, the amount of your portfolio invested in stocks should decrease, and when you start withdrawing money from your retirement accounts, you’ll need to invest your money in stocks. The risk should be reduced dramatically.

But given today’s inflationary environment, this may not be the best strategy. If rising prices mean you’ll need to withdraw more money than you originally planned, you may actually need to increase your exposure to stocks. Why? Because over the long term, stocks have given better returns than bonds or cash. You’ll need this exposure to help your portfolio’s returns outpace inflation. This may mean that you are willing to take more risks than you are normally comfortable with.

6. Revise Your Retirement ExpectationsRevisit and revise your retirement expectations. Maybe you have to leave your full-time job later than you plan. Maybe you have to work part-time during retirement. You may have to live more frugally. Maybe you have to cut back on your travel plans or delay a big purchase.

Or maybe you should delay taking withdrawals until age 72 (73 or later, if the Safeguard Act 2.0 is implemented) to make your investments work as long as possible.

You don’t have to make this decision yourself

If you don’t have the time or desire to do it yourself, consider working with a fee-only financial planner. These professionals can provide holistic advice to address every aspect of your financial life during retirement.

They can create scenarios showing what your living expenses and income might be if you retire at different ages. They can provide guidance on Social Security and Medicare. They can recommend strategies to reduce the tax impact of RMDs and other withdrawals. They can analyze all of your savings and investment accounts and recommend adjustments that will help provide you with the income you need to live today without risking the long-term viability of your retirement nest egg.

Since these fee-only advisors are paid only by you, you won’t have to worry about them trying to sell you investment or insurance products to earn a commission.

Ultimately, the best way to feel secure about your future is to make sure your retirement plan is on track, either on your own or with the help of a trusted advisor.

Pam Kruger. is the founder and CEO of Wellthromp, An advisory matching platform that connects individuals with rigorously vetted and qualified fee-only financial advisors. She is also the creator and co-host of Moneytrack on PBS and the Friends Talk Money podcasts for PBS Next Avenue.

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