Components of a Financially Secure Retirement
Most people identify
a financially secure retirement as one of their primary financial goals.
Reaching that goal can be easier by examining the four sources of income
you will have during retirement and identifying steps you can take now
to increase each of those sources.
The Social Security system has played a major part in Americans' retirement
planning for decades. The current examination and debate over the future
of the system will probably produce some changes for future retirees.
Here are some basic facts you may want to remember:
- Full Retirement
Age - the age when you can start receiving "full" benefits
is gradually moving from 65 to 67.
- Early Retirement
Age - at age 62, you can start receiving a reduced retirement benefit.
- Average Retirement
Benefits for retired couples for 2018 - about $2,340.
- Maximum Retirement
Benefit for retired workers at full retirement age for 2018 - about
At this point, there
is very little, if anything you can do to change the benefits you will
receive from Social Security.
Recent tax law changes have significantly increased the amounts that can
be accumulated in corporate retirement plans, especially 401(k) plans.
401(k) plans offer a powerful way to accumulate funds - the amount you
defer into the plan reduces your current taxable income, the plan probably
has an employer matching provision, funds within the plan can grow on
a tax deferred basis and the limits for contributions are large.
- Employee deferral
limit - $18,500 for 2018.
- Additional contribution
limit for those ages 50 and over - $6,000 for 2018.
- Maximum total contribution
limit (employee and employer) - $55,000 for 2018 and $60,000 for those
50 and over.
Contribute as much
as you can to your 401(k) plan and especially try to contribute enough
to get the full employer match. It is always nice to have your employer
help you accumulate more funds.
Anyone with earned income can contribute to an IRA to supplement other
retirement planning savings. Both regular IRAs and Roth IRAs provide for
the tax deferred accumulation of funds within the accounts. Contributions
to a regular IRA may be deductible if you do not participate in an employer
sponsored retirement plan or if your income falls below certain levels.
Roth IRA contributions can be made by individuals with income below certain
levels. Contributions to Roth IRAs are not tax deductible, but Roth IRAs
provide an additional benefit of their distributions not being subject
to income tax and there is more distribution flexibility. In addition,
individuals ages 50 and over can make additional annual contributions.
Here are the contribution limits for both regular and Roth IRAs.
IRA and Roth IRA Contribution Limits
contribution limits for those age 50 and over
Your tax advisor may
help you better understand how the tax laws would apply to your situation,
but do not ignore this powerful retirement planning tool.
The final source of retirement income will be your other savings. Accumulations
in savings accounts and investment accounts, while not enjoying the tax
preferences of 401(k) plans and IRAs, are still a major component of most
individuals' retirement income. Saving more and earning more on these
funds can add greatly to your retirement lifestyle.
Consider taking advantage
of automatic savings plans with monthly transfers to a savings account
or investment account. Also, be sure that your investment strategy is
sound with consideration given to your goals, your time horizons and your