Financial Tools to Grow Your Retirement Savings

No matter your age, it’s never too early (or late!) to start thinking about retirement. There’s always room to improve and boost your savings for later in life, whether you’re just starting in the workforce or winding down to enjoy the carefree days ahead of you. Regardless of how big your savings pot currently is, we’re here to guide you on saving for retirement by making the most of your earnings right now.

When to Start Saving For Retirement

Retirement can feel like a long way off when you’re in your twenties and starting your first job. It’s likely that this time of your life is when you’ll be earning the least amount of money, so the thought of sparing any extra cash each month can seem a little daunting. But even if you can only set aside a small amount, something is always better than nothing.

When it comes to retirement planning as a young adult, whatever amount you can contribute will benefit you later in life. Time is on your side and it’s all thanks to compound interest. This is where the interest you accrue on your savings, no matter what type of investment choices you make, continues to grow over time.

This is different to simple interest, where your rate is calculated on the deposited amount. Compound interest, on the other hand, is calculated based on the principal balance. If that balance continues to grow each year, your interest will also grow, meaning that your overall savings pot gets larger and larger. The earlier you start saving, then, the more money you’ll have by the end of your working life.

That’s not to say that you should be panicking if your younger years are behind you and you’re yet to open a retirement savings account. For individuals over 50, catch up contributions mean that you can invest beyond the usual limits set on a 401(k) or IRA account. 

If you weren’t able to start saving earlier, this is the perfect time to make use of your (hopefully!) higher salary or extra disposable income and put more money into your investment accounts. For 2022, the catch up contribution limit for a traditional IRA is $7,000 per year. Simple IRAs are a little different, with a total contribution limit over the age of 50 of $17,000 per year. If you’re enrolled in a 401(k) plan or other workplace accounts, the limit is $27,000 per year.

Bank Products to Help Grow Your Retirement Savings

Contribute to Your 401(K) Account

If you work for an employer who offers a traditional 401(k) plan and you’re eligible to sign up, this is something you should seriously consider. Not only will you be funding your retirement account but since 401(k)’s use pre-tax dollars, there are several tax advantages that you can benefit from by starting this type of account.

The money that you invest into a 401(k) is taken out of your paycheck before it ever hits your personal account, which means that it isn’t subject to federal income taxes and improves your tax deductibility for the year. In other words, your taxable income is lowered so you won’t be paying as much come tax season. While this does mean that you’ll pay taxes on these funds when you take them out in retirement, you’ll benefit from several decades of tax savings from when you start investing until you retire.

Most employers also offer a 401(k) match. This means that they’ll contribute a set amount to your retirement savings up to a certain percentage of your salary. For example, if an employer offers a 100% match on employee contributions up to 3% of your salary, an individual on a $50,000 salary who contributes $1,500 to a 401(k) would then receive another $1,500 from their employer.

Contributing enough yourself to take full advantage of your employee match is always a smart move when you’re thinking about retirement options. After all, that’s free money sitting on the table just waiting to be taken!

 

Open an IRA

Whether or not you’re investing in a 401(k) plan, take some time to decide if you should also open an IRA account. An independent retirement account is often a good option if you’d prefer to keep your funds separate from your employer. To be eligible, you’ll need to have made some form of income in the previous tax year – pension income or Social Security benefits don’t count so if this is the only money you’ve received, you won’t be able to open an IRA.

Both IRAs and 401(k)s are tax-deferred, which means that you won’t pay taxes until you make withdrawals in retirement, but a traditional IRA is opened, funded, and managed all on your own. This makes it a much more flexible account type if you like to be hands-on with exactly what you’re investing in, from individual stocks and bonds to mutual funds.

A Roth IRA, on the other hand, is funded using post-taxed dollars, which means that you won’t have to pay any additional federal, and possibly state, taxes when it comes time to make withdrawals. Contributions to a Roth are limited though, so that’s something to think about before you open an account. For 2022, the annual limit is $6,000 (plus an additional $1,000 if you’re over 50). If you’re not eligible for a 401(k) or traditional IRA, a Roth can be a great alternative.

 

Start a Health Savings Account (HSA)

You may already have an HSA open with your employer and use this to pay for out-of-pocket medical expenses. But it can also be a great tool to help you save for retirement too. As you need to be on a high-deductible health plan in order to enroll in an HSA, you’re likely already seeing some budget-friendly savings thanks to the low premiums of your health plan. Any of the extra savings you make here can be put into a more traditional retirement account.

But that’s not all. HSAs offer a triple tax saving since you’re contributing pre-tax dollars, you aren’t paying any taxes on the earnings that the account is making, and you can take out the funds tax-free both before and after retirement to pay for your necessary medical expenses.

Unlike a flexible spending account, your HSA money is portable and yours to keep forever. If you choose to use those funds for non-medical purposes after the age of 65, you’ll need to pay a standard income tax just like a 401(k) or traditional IRA. But for qualified expenses like Medicare premiums, long-term care costs, or other medical needs, you can take out that money tax-free for the rest of your life.

 

Work With a Financial Planner

Setting up an appointment with a financial planner is a great solution to finding the best retirement accounts for your personal situation. At Town and Country, our experts can give you personalized guidance on your investment strategy and help to manage existing asset allocations and portfolios. We’ll also work with you to strategically time your withdrawals from your retirement accounts to benefit from tax savings long-term.

Other resources and strategies that can help

Automate Your Savings

It’s easy to miss out on the benefits of investments when you’re thinking about other items in your budget. That’s why a “set it and forget it” approach can be your best option. When you automate your savings, you never have to think twice about putting aside money for retirement.

Rein in Spending

Knowing exactly where your money is going each month is an important part of financial wellness. Keep track of all of your income and expenses so that you can continually review what you’re spending and where you may be able to make some savings. Any extra cash that you find in your budget can always be reinvested into your retirement accounts.

Budgeting apps can be helpful if you struggle with staying consistent. These connect to your bank account and automatically categorize your expenses, making it easy to see where you’re overspending. If you have existing loans, you may want to look at refinancing options to save some additional money. A financial calculator is a good place to start to estimate how much you can afford to pay back each month if you decide to move ahead in this direction.

Use Online Resources

Investing in your financial education can really pay off and help you to make better decisions about how to spend and invest your money. There are plenty of resources online for different levels of experience and knowledge, from YouTube channels to investment podcasts. Even email newsletters can keep you up-to-date with what’s going on in the world of finance.

Set Goals

Having a plan in place is one of the best ways to stay motivated when it comes to saving money. Set yourself both short term and long term goals to see instant benefits. A 1-year goal, for example, is much easier to accomplish and, once you’ve achieved it, will encourage you to continue working towards your bigger 5 or 10-year goals ahead.

 

Invest Extra Funds

You never know when you’re going to come into some extra cash. Whether it’s a tax refund, a salary bonus, or even a more frequent payment like additional income from a job promotion. Set your budget to the least amount you can afford to live on and invest anything beyond that in your retirement accounts.

Boost Your Retirement Savings Today

When you’re ready to review your retirement options, contact the team at Town & Country Bank. Our personal financial planning experts will work with you to decide the best retirement account for your situation and can help with any estate planning or investment management needs that you might have. Get in touch or visit one of our branches today.