Top of mind for many individuals is whether or not they have accumulated sufficient assets to retire and if they’re saving enough to meet their goals and objectives. While determining an approximate amount is a more in-depth exercise involving numerous variables, these few tips below are an easy way to start building a better nest egg:
- Update your budget – Creating and utilizing a budget can help establish spending patterns, reveal inefficiencies, and uncover excess cash flow and opportunities for savings. Usually, budgets should not exceed more than a year and should be calculated on a monthly basis. When putting together the budget, make sure to keep it simple; if there is too much detail, you risk making it too difficult to implement and monitor.
- Make sure you have a healthy emergency reserve – This account can serve as a buffer to your retirement accounts should something unexpected come up. A general rule of thumb is to keep at least 3-6 months’ worth of expenses in liquid assets to protect against unforeseen circumstances (i.e., job loss, disability, unexpected car or home expense, etc.). This fund may consist of checking/savings accounts, money market funds, or short-term CDs.
- Adjust your tax withholding – If you generally overpay your taxes, you are not only reducing the amount you could be saving, you are also losing out on any compounding interest that could have been accrued on those funds. For these reasons, it is wise to estimate your taxes due ahead of time so that you can withhold the proper amount each year.
- Save your tax refund – If you do overestimate your taxes and wind up with a refund, consider using it to fund your IRA or emergency reserve or pay down debt.
- Check your credit score – Establishing good credit is important for debt management purposes, since it is integral to obtaining loans and securing favorable interest rates. If you have existing debt, you may wish to consider refinancing. The lower your interest rates on loans, the more money in your pocket each month and the more that can be saved.
- Invest in the market – Contributing as much as is feasible to your retirement accounts is the first step in savings, but equally as important is investing wisely. Overcoming the impact of inflation, while also growing your money, requires prudent diversification and allocation.
- Leverage your employer match – Employees fortunate enough to receive these contributions should increase savings to at least the minimum amount necessary to receive the full company contribution. Outside of that, individuals can contribute up to the maximum that the plan allows.
- Contribute the maximum amount (if you can) – Employees can contribute to their retirement accounts up to annual maximums set by the IRS. Upon turning age 50, people can also begin to make annual catch-up contributions. In addition, the tax benefits of these plans can allow for increased growth.
- Consider a new plan – Self-employed individuals should review their current retirement plan to determine if it’s the most effective in terms of cost and allowable contributions. Some of the more popular plans include SEP IRAs, SIMPLE IRAs, and the Individual 401(k), each having different pros and cons.
If you have questions or concerns about whether or not your savings is adequate, you may wish to consider having a MASTERPLAN done. This financial plan will take a comprehensive look at your financial situation and help establish a personalized savings goal. Please contact Hefren-Tillotson for further details.