Everybody will encounter retirement at some point, and, therefore, it is vital to make the most out of one’s retirement savings. Saving for retirement is a wise financial decision regardless of age or economic status; these funds determine how comfortable a person will live in old age and if their money will outlive them (Horwitz et al., 2019). Therefore, making the most out of one’s retirement saving is critical in creating a nest that can withstand risks such as market turmoil, inflation, and unexpected life longevity. This post describes what one can do to maximize his or her retirement savings.
First, if the workplace provides a 403(b) or a 401(k) voluntary retirement plan, one should sign up and contribute up to the maximum amount allowed by law to obtain the highest financial benefit. For instance, if an individual earns $50,000 annually, his employer will contribute up to five percent of his earnings, matching each dollar he adds to the retirement plan (Horwitz et al., 2019). Investing about $2,500 into the 401(k) account will automatically give him a bonus of $2,500 from his employer, along with associated tax benefits. However, if the person does not contribute his five percent to the pool, he will not get the free money.
Secondly, one can pay double contributions to the retirement plan. However, the opportunity is limited to the public sector, teachers, non-profit employees, and healthcare employees. Middle or lower-income taxpayers can claim a tax credit for at most fifty percent of their retirement contribution. Lastly, workers under the income thresholds can subscribe to a Roth IRA on top of the voluntary retirement workplace contribution. Though the grant is tax-inclusive, in retirement, the earnings are tax-free. People who are not eligible to contribute to a Roth IRA can sign up for the traditional IRA plan.
In summation, automating one’s retirement plan by having some of his or her earnings transferred from the paycheck to their retirement accounts is critical in increasing retirement savings. The money that one cannot get their hands on any time they want becomes more savings for their retirement nest. Therefore, people should take advantage of the available tax-saving retirement options they qualify for and contribute. One can start maximizing the dollars in their retirement accounts now to secure their financial future.
Reference
Horwitz, E., Klontz, B., & Zabek, F. (2019). A financial psychology intervention for increasing employee participation in and contribution to retirement plans: Results of three trials. Journal of Financial Counseling and Planning, 30(2), 262-276.