BATON ROUGE, La. (BRPROUD) Financial planner, Gregory Ricks, urges everyone to take control of their savings, if they are not doing so. He recommends performing a budget audit to see how much money is coming in and how much is going out, in order to see where is the waste. Ricks offers a budgeting tool to help people get started. Ricks answered the following questions about retirement.
How much should people be saving on the road to retirement?
• According to a survey, the majority of savers say they need at least $3 million.
• There is a general rule of thumb that says we should be saving 10-15% of our pre-tax income towards retirement.
• The exact amount you will need depends on your individual financial situation and your desired lifestyle in retirement. If you want to know if you’re on the right path to retirement, here are a few savings milestones:
• At age 30, save the amount of your annual salary.
• By age 40, you should have accumulated three times your annual salary.
• At age 60, your goal should be eight times your annual salary.
• By retirement age, you should have between 10 and 12 times your annual salary in retirement savings.
How can we reach our retirement savings goal?
Take Advantage of 401(k)s
• For 2023, individuals can contribute $22,500 to a 401(k) plan. If your company offers a match, you and your employer can save a total of $66,000.
• Unfortunately, 17% of workers don’t contribute to their employer-sponsored retirement account.
• Of the employees who do contribute to a 401(k) plan, 17.5 million miss out on the full match and leave free money on the table!
• I recommend contributing 10-15% of every paycheck to your 401(k). If you can’t manage that, you need to be contributing at least enough to get the company match.
Open an IRA
• Consider opening an individual retirement account (IRA) for additional income in retirement.
• There are two main types of IRAs: Traditional or Roth.
• Contributions to a traditional IRA are tax deductible and the investment earnings can grow tax-free until you withdraw the funds in retirement.
• With Roth IRAs, your contributions are taxed upfront and you are able to withdraw the money tax-free in retirement.
Automate Your Contributions
• One of the most efficient ways to save for retirement is to make automatic contributions directly from your paycheck into your 401(k) or other retirement accounts.
• This will make it less tempting to spend your money rather than save it.
• It’s also important to increase your savings over time, which can also be automated. Consider contributing an additional 1-2% annually or every six months.
• A small increase will not be very noticeable from your paycheck but will make a big difference. If you want to run the numbers, I have a retirement calculator on my website, gregoryricks.com.
Avoid Penalties
• Do not withdraw from your account before you need the money in retirement. If you withdraw from your 401(k) before age 59 ½, that money will be taxed as regular income, and you will pay a 10% penalty.
• There are a few exceptions to early withdrawal penalties. I recommend consulting your financial professional if you’re considering taking money from your 401(k).
What advice do you have for those who are close to retirement and realize they don’t have enough saved?
Leverage Catch-Up Contributions
• Retirement accounts are designed to help workers age 50 and older by allowing additional catch-up contributions.
• In 2023, catch-up contributions allow workers age 50 or older to save up to $73,500 in their 401(k).
• If you’re serious about retiring, save as much as you can while you’re still earning a paycheck.
Ask for Help
• No matter what age you are, a financial professional can help you create a retirement savings plan to meet your needs.
• This plan should evolve as you get closer to retirement and include everything from Social Security to tax planning strategies.
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