Meg Schutte Apr 22, 2021

Freedom and cash, these are two things you’ll want most when you finally retire. How much you will need depends on your plans and how you plan to pay for them. It’s all dependent on what you’ve saved during your career, what you can expect to draw during retirement, and any strategies you have in place to keep earning money while you kick back. Plus, you’ll need to factor in the increasing costs of living and health care expenses, and that people are living longer. The goal is to do everything you can, now and later, to build and grow a healthy retirement portfolio. Some things to focus on:

Invest Time: Make a Plan – Retirement is going to come sooner than you think. The earlier you start saving for it, the more you can enjoy it when that day arrives. There are all sorts of ways to maximize your money to be positioned as well-off as possible. And even if you haven’t given it much thought or put that much money away, it’s time to take charge and do so. Sitting down with a financial advisor can help you to devise a game plan and a savings strategy to get you where you’d like to be when you leave the working world.

Invest Smartly: Contribute to Tax Advantaged Accounts -
Whether you work for a company or for yourself, there are retirement savings plans that you can participate in that can increase your wealth by compounding your money year over year.

For Employees:

Participate in a 401(k) - Never leave money on the table. If your employer offers a Traditional 401(k) savings plan, put the maximum percentage that you can into your account. Set up an automatic deduction from your paycheck on Day 1. Keep that money out of your hands and earning more in the background. If your company matches contributions – this is free money they’re giving you – find out when you’re fully vested and can claim any employer match. Most 401(k)s are tax-deferred, so your contributions will reduce your taxable income for the year, but you will pay taxes on your distributions. If you leave your job, you can take your 401(k) with you or leave it where it is. Growing in popularity are Roth 401(k)s, where your contributions don't reduce your taxable income now, but your distributions are tax-free later.

For Self-employed/Small Business Owners:

Fund a SEP
–  When you work for yourself, you don’t have the luxury of an employer-sponsored retirement plan, but you can still set one up by contributing to a SEP IRA (Simplified Employee Pension) with more generous yearly contribution allowances. Similar to traditional IRAs, your contributions are tax-deductible in the year you make them, helping to save you money on your taxes.

For Individuals:

Open an IRA - In addition to the above two options, you can also supplement your nest egg with an IRA retirement account. Working with a broker, you can choose from a variety of investment options – more so than most employer-sponsored plans, and should aim to contribute as much as you can each year. You can select a Traditional or Roth IRA based on which one will give you better tax advantages:

Traditional IRAs are funded with pre-tax dollars, so they lower your taxable income for the year and you pay taxes on distributions. Contributions are not limited by annual income.

Roth IRAs use after-tax dollars, so contributions have no effect on your taxes, but you can withdraw savings tax-free in retirement. Limits and eligibility are based on your modified adjusted gross income (MAGI), depending on tax-filing status.
Note: You can set up a Roth IRA for anyone in your family who has earned income.

Invest in the Market: Maximize Your Money – Beyond putting your money into retirement plans, or typical high-yield savings, CD and money market accounts, you can invest in financial products like stocks, bonds, and mutual funds yourself or an investment professional can help you. Of course, there’s more risk in playing the market, but also great returns if you hit it big. When you’re younger, you have more flexibility; but the closer you get to retirement age, you will want to protect what you’ve accrued and be more conservative. Some experts suggest subtracting your age from 110 to determine how much to invest in stocks. For example, if you’re 60, you would want to allocate 50% stocks/50% to bonds. The goal is to diversify your portfolio, minimize fees, and make choices that match your tolerance for risk. If you can ride out marketplace volatility and leave your investments alone – remember, you’re in this for the long haul – these options might be right for you.

Stocks: When you buy a company's stock, you’re getting equity in the business, and as a “shareholder,” share in their profits. Stocks are sold on public exchanges like NASDAQ and the New York Stock Exchange. The value of a stock increases or decreases based on the success of the company. When the stock price goes up, you can sell it for a profit. You can also earn shareholder dividends, typically paid out on a quarterly basis. There is always a risk that a company can lose value or go out of business, and then you may lose all or part of your investment. But when the market or stock is in good shape, you can enjoy big gains.

Bonds: With bonds, you’re basically loaning a company or government money to help them do business. So they are in debt to you, and will pay you interest on the loan for a set timeframe – which can range from a few days to 30 years. These fixed income payments can be added to your retirement cash flow. Again, there is risk: if the company goes bankrupt, you’ll stop receiving interest payments and might not regain your full principal. If you hang on to a bond until full maturity, you will receive the face value of the initial bond and any interest that hasn’t been paid out to date.

Mutual Funds:
This type of investment sounds like its name: it’s a professionally managed investment portfolio that allows you, along with other investors, to pool your money to invest in a collection of assets, like stocks, bonds and securities. It’s like buying pieces of lots of different companies and your returns (or losses) are related to the overall value of the funds’ performance. Share purchases are final after the close of market. It’s a simpler way to invest, with fund managers making choices for you. And mutual funds liquidity makes them easier to buy and sell.

Invest in Tomorrow: Push Back Social Security Benefits - As America’s pension plan, Social Security is designed to provide you income during retirement years. You have been paying into the system your whole career and when you retire, it’s time to collect. While you can begin taking benefits at age 62, it’s best to wait until you reach full retirement age, which is either 66 or 67, depending on the year you were born. Even more advantageous, your benefit will increase 8% each year, up until age 70. So the longer you hold off, the more you will have to put into your pocket. For example, if you begin drawing benefits at age 62, and your full retirement age is 66, your benefit would be reduced by 25%. Wait until age 70 and collect 132% of your monthly benefit.
Note: To get an idea of what your Social Security payment might be, visit Use the  retirement benefit estimator to see what you can count on in retirement.

Pullout Quote:
For about half of elderly Americans,
Social Security is at least 50% of their income;
for close to 1 in 5 married couples
and nearly half of single seniors, it's 90%.

Invest in You: Keep Working - Retirement isn’t for everyone. A lot of people like having a job, something to do, a place to go, people to socialize with... not to mention there’s a lot of comfort in still collecting a steady paycheck and benefits, especially healthcare. Ask your employer if you can go part-time or stay on as a consultant. Or start a side hustle or new career in an entirely different field for a monthly draw. If there’s a way to stretch your savings over your retirement years, by all means – do it!

Invest with a Professional: Whatever your retirement goals, an experienced Wealth Advisor at Bank of Hope Investment Services can help you develop and implement a retirement strategy. Compare and choose key financial products and services to get you where you want to go in your golden years.

Meg Schutte is a Bank of Hope Blog contributor.   
The views and opinions expressed in this article do not necessarily represent the views and opinions of Bank of Hope.

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