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How to Make Your Retirement Dreams a Reality

Retirement. It’s something all adults dream about. When that time comes, maybe you’re planning to travel the world or plan to downsize to a little place on the beach. You need to make those plans a reality. That requires a plan.

Retirement planning is mandatory regardless of whether you’re just starting your career or you’re a bit further along. We’ll discuss some key points to consider in developing your plan.

Maximize Your Retirement Savings

Lawmakers want you to save for your retirement. They recognize Social Security doesn’t provide the retirement security it once did. By offering tax breaks when you stash money away, Congress makes saving for your retirement a tax friendly activity. Often, this money isn’t taxed at the time you save it. Instead, it’s taxed when you withdraw and use it.

If your employer offers a 401k retirement plan, contribute as much as you can to get any free money your company provides. This free money is called a company match. The amount is typically a percentage of the amount you contribute to your 401k account. Your retirement savings will increase much faster with a company match. But keep in mind your company’s 401k plan may include a vesting period for the company match.

Although the money you contribute is 100% yours, the money your employer contributes may become yours over a period. For example, assume your 401k plan has a vesting rule of 50% after three years of employment and 100% after five years. This means that until you complete three years of employment, you are not entitled to any of the company match. After three years of work, you will get 50% of the company match. And only after you work five years will you be entitled to 100% of the company match.

Understand Pre-tax vs. Post-tax Dollars

Your contribution to a 401k plan will be made with pre-tax dollars. Using pre-tax dollars means you save on your tax bill today but will pay tax in the future when you withdraw the money. Funding your retirement income with pre-tax dollars makes sense if you expect to be in a lower tax bracket when you retire. For most people this is the case. Higher taxable income equals higher tax brackets.

This sounds great, I know. However, there are limits to how much you can put into your retirement accounts. Currently, the maximum you can contribute is $19,000 per year. If you are over 50, you can contribute an additional $6,000 per year to a 401k plan. Therefore, you can save $25,000 per year if you are over 50 and your employer has a 401k plan.

If your employer doesn’t offer a 401k plan, consider saving money in an individual retirement account (IRA). The IRS currently allows you to contribute up to $6,000 per year. This money can be tax deductible in the year you save (if you use a traditional IRA) or can be tax free when you withdraw it (if you use a Roth IRA). You can have both an individual and a Roth IRA. This allows you to save $12,000 each year toward your retirement income or long-term care. Spouses can have their own accounts, so if you’re married, that’s another $12,000 for your retirement goals. And if you’re 50 or over, you can each add an additional $1,000 per year.

Give Back While Lowering Your Tax Bill

Simply because you’re saving for retirement doesn’t mean you can’t continue to support your favorite cause. Whether it’s animals, your church, or the environment, you can help them while you help yourself. Any charitable deduction you make can lower your tax bill. If you itemize deductions on Schedule A, you can deduct what you give to charity. By lowering your taxable income, you may end up in a lower tax bracket … meaning you pay less tax. It’s a win-win!

Estimate Your Social Security Benefits

We’ve all heard numerous stories that Social Security will run out of money and that you shouldn’t count on Social Security being around when you’re ready for it. Whether that’s true remains to be seen. However, you can see an estimate of your benefits by creating an account on the Social Security Administration’s website.

Use this estimate as a starting place. Social security likely won’t provide enough to fund your retirement or long-term care. Therefore, start your retirement planning early. The longer your money can earn interest or appreciate, the more money you’ll have at retirement.

We’d love to speak with you about your retirement plan. Our trusted advisors are here to answer all your questions. Give us a call today!

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