How much retirement savings should I have? | 7 retirement tips if you are late to the retirement savings game
For a lot of people, it is not realistic to prioritize retirement savings earlier in their careers. Whether it’s kids college, buying that first home or just paying off debt. Saving for retirement wasn’t a priority… until now. We’ll outline several ways for you to supercharge your retirement savings when starting later in life.
1. The question “how much retirement savings should I have?” starts with building your emergency fund
First things first, you will need to build a sufficient emergency fund. This fund should be able to cover your expenses for three to twelve months depending on multiple risk factors.
It is best to keep this fund in a high-yield savings account or money market account where you will have easy access to the funds for emergencies. You want to keep this money as liquid as possible.
2. Max out your employer-sponsored retirement account
In most cases, a 401(k), 403(b), or employer-sponsored retirement plan is the easiest way to start saving for retirement. The first action to take with these plans is to take advantage of any matching contributions that your employer offers. This match is a guaranteed return on your investment.
The contribution limit for 2022 is $20,500, or $27,000 if you are age 50 or older. Contributing the maximum allowed to your employer-sponsored retirement plan will enable you to supercharge your retirement savings while saving on taxes.
3. Max out a Roth IRA
Opening a Roth IRA is a great way to create flexibility during your retirement years. With the Roth IRA, you contribute to the account using post-tax dollars and the account grows tax-free.
Then, when you take money out of the Roth IRA during retirement, you do not have to pay taxes. After contributing enough to your employer-sponsored retirement plan to receive any match, consider maxing out contributions to a Roth IRA. The contribution limit for 2022 is $6,000, or $7,000 if you are age 50 or older.
Keep in mind that Roth IRAs have an income limitation. Make sure you confirm that you are eligible before contributing.
4. Max out an HSA
If you have a high deductible health plan (HDHP), check to see if you are eligible for the Health Savings Account (HSA). HSAs are tax-advantaged, meaning that you can make contributions to the account with pre-tax dollars.
HSAs are triple tax-advantaged if you use the funds for qualified medical expenses. Not only can you make contributions with pre-tax dollars, but also the account grows tax-free and can be withdrawn tax-free for qualified medical expenses.
The contribution limit for individuals in 2022 is $3,650 ($7,300 for families) or $4,650 ($8,300 for families) if you are age 55 or older.
5. Get rid of high-interest debt
In most cases, paying off high-interest debt will provide the best return on your money. The average credit card interest rate in 2021 is around 16%. This is by far much greater than the historical 7% average annual stock market return rate.
6. Watch out for lifestyle inflation
As your income increases, it is very important to limit lifestyle inflation. Consider creating a zero-sum budget where every single dollar earned is assigned a job, whether that’s going into savings, paying debt, paying bills, or treating yourself here and there.
7. Create multiple streams of income
With less time for compound interest to work to your advantage, it is important to save more aggressively towards retirement. If you find yourself behind, consider your options for earning extra money through side hustles.
“How much retirement savings should I have?” isn’t a one size fits all question
That’s why deciding to work with qualified advisors like the advisors at Teton Wealth Group can really help prepare you for your retirement. Everyone working toward retirement needs an Ascent Plan. Take Teton Wealth’s retirement mistakes quiz to see where you stand.
Today’s Top Stories
- Morning storms impact school schedules
- Sugar House locals worry 2100 South poses threat to safety and business
- Suspect in Wednesday’s I-15 shooting is named, booked into jail
- Former American Fork soccer coach arrested on charges of child sexual abuse
- Confrontation with bicyclist sends UTA bus driver to hospital
- Hidden cameras found in restrooms in U of U Student Life Center, suspect in custody
- Victim in fatal auto pedestrian crash was 11 years old, investigation continues
- Semi rollover on Legacy Highway reduces traffic to one lane
- US economy added a robust 263,000 jobs in November
- Storm bringing wind and snow to northern Utah