Eight tips to keep your retirement plan on track

We all know uncertainty is a constant — and that won’t change anytime soon. Whether it’s the stress of everyday life, making ends meet during a period of increasing inflation, or worrying about the possibility of a near-term recession, long-term financial planning can quickly fall to the bottom of your priority list. But planning for retirement is critical and shouldn’t be put off to the distant future. The sooner you start, the more successful you’ll be.

The big question: Where should you start? One way to ensure your financial planning doesn’t get lost in the day-to-day noise is to work with a trusted financial advisor to review your budget, set realistic goals, and regularly revisit your plans. No person or family’s path is linear, and it’s important to work with an advisor who knows how goals and plans are apt to change over time and can help you make adjustments along the way. In addition to working with an accredited advisor, we’ve put together a list of planning tips to help you along the way.

It’s important to work with an advisor who knows how goals and plans are apt to change over time and can help you make adjustments.

1. Set a goal and start early

This seems simple but, unfortunately, many don’t think about retirement early enough in their careers. By setting a goal, you’re starting to hold yourself accountable for your future. Every path is different but for most people, demands on time and money increase when they’re launching a career, considering marriage and kids, buying a house, caring for aging parents, etc. Having good practices set in place early can help you manage the additional demands while making sure you’re able to take advantage of compounding interest and the time value of money — the golden keys to retirement investing.

2. Create a budget (and stick with it!)

Whether it’s early or later in your career, setting and sticking with a budget is extremely important. Creating a budget can feel daunting or restricting, but it doesn’t have to. At a minimum, have a good understanding of how much income is coming in and what spending and expenses are going out. Know where your money is going and revisit from time to time to make sure money is going toward your priorities and not wasteful items that may not being meaningful to you.

Whether it’s early or later in your career, setting and sticking with a budget is extremely important.

3. Contribute to your employer’s sponsored retirement plan

Most employers offer some type of retirement savings account (401(k), 403(b), 457, etc.) and everyone who’s eligible should use it. It may allow you to contribute pretax dollars — a huge advantage. Let’s say you’re in the 24% tax bracket and you put $1,000 into your employer’s sponsored plan. You’d automatically save $240 in taxes annually. There are certainly other benefits and things to consider, but this is one of the easiest ways to help save for your retirement. If you’re just getting started, we recommend contributing at least enough to get the maximum employer match in your retirement plan. Typically, an employer will offer an incentive to their employees to fund their 401(k) plan by matching up to a certain amount. For example, an employer might match a certain percentage of your salary each year. That employer match to your retirement account is essentially a bonus to you every year that’s tax-free when you receive it and grows tax deferred. While it may not feel like much, it adds up over time and it’s essentially “free money” from your employer.

4. Increase your savings each year

As wages increase, typically your savings should increase as well to keep pace. Sometimes employer-sponsored plans have an option to automatically increase your wage-deferral percentage each year. This is an easy way to increase savings without ever having to manually make the increase. When saving is built into your routine, it becomes a lot easier.

As wages increase, typically your savings should increase as well to keep pace.

5. Automate savings and invest excess cash

Many employers offer the option to send your wages to multiple accounts. Instead of sending everything to your checking account, look to send part of your paycheck to either savings or a retirement account. The general rule of thumb for a cash reserve is to have at least three to six months of expenses readily available, in some circumstances, as much as 12 months is acceptable. For example, if your monthly expenses are $5,000, you should have between $15,000 to $30,000 in a savings account, checking account, money market account, or cash. If you have excess cash, you should look to maximize your employer-sponsored plan, open an IRA, a Roth IRA, or an individual account to get your dollars working. Even with increased interest rates expected to continue, cash and cash alternatives aren’t providing much, if any, interest. It can be tempting to invest your cash reserve to have more earning potential, but that can be risky, and it’s not recommended.

6. Take advantage of catch-up contributions

If you’re over the age of 50, you’re eligible to save additional dollars to most employer-sponsored plans, your IRA, and your Roth IRA. The amounts vary year to year due to inflation adjustments but, regardless of the amount, it can be a huge value-add for your retirement savings.

7. Use a target date mutual fund

If you’re unsure of how to approach investing and it seems daunting, consider a target date mutual fund. A target date mutual fund lets you pick a fund that closely matches your expected retirement date year and automatically builds out a diversified portfolio that gradually gets more conservative as you get closer to your retirement year. If you’re not in the practice of regularly reviewing your asset allocation mix and you’re not working with an advisor who can manage your asset allocation on your behalf, this can be a great option. Most employer-sponsored plans have target dates mutual funds available to their participants, but they’re also available to use in IRAs, Roth IRAs, and taxable accounts.

8. Diversify balances between different tax-status accounts (tax-deferred, tax-free, and taxable)

As you advance in saving for retirement and start maxing out your deferrals to different retirement accounts, you can maximize tax savings by diversifying your assets between tax-deferred, tax-free, and taxable investment accounts. All of these accounts are taxed in different ways, so you can potentially save taxes by allocating investments between these accounts based on the income they produce and using the flexibility in your retirement years to keep taxes as low as possible.

Taking a little time now to set up a well-thought-out retirement plan can pay huge dividends in the future. And while this may sound like a lot to consider, you don’t have to do it alone. To find out how an accredited financial advisor can help, give us a call.