It's Like Eating Your Vegetables
Years ago, an article I was reading noted that saving for retirement was like eating your vegetables. You know it’s good for you but it’s no fun.
Honestly, I like vegetables but I get the sentiment. For some, it can be difficult to give up money that we can use today for some far-off purpose. But we know it’s good for us.
Saving for retirement is one of those financial goals almost all of us share. Employer based savings plans make it easier for us with automatic payroll deductions and a pre-selected array of investment options. These plans have now become more complicated. Our contributions can often be pre-tax or Roth (k). Some plans even offer a third choice, after tax contributions (which can be made after Pre-Tax and Roth have been maximized).
Don’t let the choices deter you. Use your 401(k), 403(b) or 457(b) savings plan to build up value that can help you achieve and enjoy retirement. Contribute as much as you can and invest it appropriately for your time frame (how long before you’ll start spending it) and risk tolerance.
You can also choose to use an individual savings account like an IRA. Again, these come with some choices such as a Traditional IRA and a Roth IRA. Each have certain advantages and restrictions but you can set up automatic monthly savings to them if an employer plan is not available. You can also effectively use them for a spouse who isn’t in the workforce.
These plans are powerful tools. Let us know if we can help you incorporate them more effectively into your personal retirement savings program. You’ll note, elsewhere in this newsletter that the maximum contribution levels for employer-based plans will increase in 2020.
Employer retirement savings plans can also be an effective tax planning vehicle. Be sure to use an effective tax strategy. If you’re starting out in your work career, a potential goal is to save 10% of your earnings. This would include any contributions from your employer. The later we start saving, the more we need to save. Younger workers, most likely in a comparatively lower tax bracket may benefit from Roth (k) contributions while higher income individuals may benefit more from a tax break this year.
Keep in mind that in my experience of over thirty years helping clients prepare for and enter retirement, I have never had anyone who has reached retirement look at me and say, “Darn, I saved too much!”