Definition of Savvy: having or showing perception, comprehension, or shrewdness, especially in practical matters.
Money Savvy: smart with money, money-wise, financially astute, shrewd.
If you started saving for retirement at an early age, chances are you’ll hit your retirement goal. However, if you’re like most Americans, you didn’t start right away and will need to plan for a possible retirement savings shortfall. How can you make up the difference? Don’t put off saving; begin now! Now is the time to maximize your saving, while you still have time to make up the difference. Review your saving and spending habits and assess what you can do to save more this year:
Save Unexpected Money Windfalls. If you’ve received a bonus at work or inherited money, instead of spending it, save it! Are you expecting a tax return? Add it to your emergency fund, start or max out your Roth IRA contributions, or invest it into another investment. If you have debt, pay it off using your unexpected windfall.
Don’t Spend More Than You Make. Overspending, credit card debt, and debt in general, will hamper your saving if your extra income goes toward paying down debt. Not living beyond your means is easier said than done. Focusing on your spending and sticking to a budget should be a priority for you in 2022.
Get Your 401(K) Employer’s Match. Ensure you’re contributing enough into your employer’s retirement plan to receive the employer’s matching dollars. If you’re not saving enough to receive a matching contribution from your employer (commonly a 2-4% match), you’re throwing away ‘free money.’ For 2022, you can contribute $20,500 into your 401(K) if you’re under age 50 and $27,000 if you’re over age 50.
Max Out Your Roth IRA Retirement Contributions. For 2022, Roth IRA contributions are $6,000 if you’re under age 50 and $7000 if you’re over age 50. In your Tax-Sheltered 401(K) Roth retirement savings account, if you have one through your employer, the maximum is $20,500 if under age 50, between your 401(K) and 401(K) Roth, and if you’re over age 50, $27,000 between both. Note that you can’t exceed the maximum Roth IRA contribution.
Take Some Risk. If you have your retirement savings in an interest-bearing account outside of the stock market, you will not keep up with inflation in retirement over time. Meet with your financial professional to have your investor risk profile evaluated to determine how much market risk you can tolerate. Having 100% of your retirement savings in the stock market may not be best for you, but all of it outside the market may not be either.
Be Aware of Future Tax Implications. You may want part of your retirement savings in tax-sheltered accounts. Discuss investment options and their tax benefits with your financial and tax professionals to understand how taxes may impact your retirement savings contributions now and later in retirement.
If you’re anticipating retiring in the next 1-2 years, understanding how taxes will affect you is critical. Many new retirees don’t realize that their taxes may dramatically increase from liquidating too much from their pre-tax retirement accounts during the first five years of their retirement.
Monitor Your Investments. Always meet with your financial professional for a retirement savings portfolio review at least yearly to determine if your risk tolerance, fund choices, and the timeline for your retirement are still on target.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security and is not intended as ERISA or investment advice. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
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