With recent reports of millions of Americans having little to no money set aside for retirement, has that made you look differently at your own financial situation? Are you looking for solutions and answers? Let’s start with a few moves that you as an average American can make to help secure their future, without being a millionaire.
Have multiple accounts
Did you know that you’re allowed to have multiple retirement accounts? Meaning that you can open and contribute to your employer’s 401K program, and also open and contribute to an Individual Retirement Account (or IRA). Both account types have restrictions on contribution limits, the 2018 contribution limit for a 401K is $18,000, and it’s increased to $24,000 if you’re 50 and over.
You can then also contribute $5,500 in a Roth or Traditional IRA for 2018, and that’s increased to $6,500 if you’re 50 and up. Note that those amounts are the combined limit for both types of IRAs. If you open both a Roth and a Traditional IRA, you can only contribute $5,500 total.
Make it self-directed
Self-directed IRAs are what we do best, and how they’re different from regular IRAs is fairly straightforward. Self-directed accounts are fully managed by you, the account owner. You choose the investments, how your portfolio is diversified, and how your money works for you. With regular IRAs, your retirement savings are invested into pre-made portfolios, that will mostly be made up of stocks and bonds, tying your wealth down to an unpredictable and singular market.
Have Social Security work for you
If you do a simple Google search on “when to start taking Social Security” you will get an array of answers. Arguments from delaying Social Security, to taking it early, the thing is, they’re all correct. The trick is finding what works for YOU. Are you and your spouse still working? Is only your spouse working? Are you single? Are you counting on taking Social Security early, and saving it, or do you need the assistance? All are very real situations, and none of them should be considered an “incorrect” approach to retirement.
Make an informed decision when it comes time for it. Here’s what you need to know.
What early Social Security can cost you
If your full retirement age is 67, your Social Security benefit can be reduced by:
- 30% if you start collecting at 62
- Around 25% if you start collecting at 63
- 20% if you start collecting at 64
- About 13.3% if you start collecting at 65
- Around 6.7% if you start collecting at 66
If taking Social Security early is something you’re interested in, check out this resource from AARP that breaks down the benefits of taking Social Security at multiple ages and other factors.
Plan your savings
Just in case you haven’t already, here’s a link to a retirement calculator, punch in all of your information, and wait for your gut to drop. Seems daunting, doesn’t it? It doesn’t have to be. There are several options for all Americans who wish to make a bigger retirement contribution. If you’re over 65, switch your healthcare needs over to Medicare. Talk to your CPA before tax season to make sure you’re getting the most out of your tax deductions (hint, Traditional IRAs are tax-deductible). As soon as retirement savers are over the age of 50, IRA and 401K catch-up contributions increase by thousands so that your money can work harder for you.