As we enter into the heart of tax season across America, and people of all means make that annual probe of their finances, experts say there is no better time to assess your retirement assets and strategies too. For its part, the U.S. Department of Labor estimates that less than half of Americans have calculated how much money they might need when they stop working, and they suggest 70% of pre-retirement income as a rule of thumb.
Add in the current degree of strain and stress on federal budgets nowadays and doubts surrounding the safety nets that investors have relied upon over the years, and retirement specialists like Tracey Flaherty, the Senior VP of Retirement Strategy at Natixis Global Asset Management say "it has never been more important to save for your own retirement, every way you can."
And the first thing to do is figure out how much you need to be secure. That's where Investing 101 comes into the conversation, as we discuss 5 ways to reach realistic retirement goals.
1) How Much Should You Contribute?
"People don't contribute enough," Flaherty says. A good place to start is with a Retirement Calculator from a reputable investment site or organization, as well as a check with your tax adviser or the IRS, as the laws surrounding contribution limits change.
"It's really important to take advantage of all the tax incentives that are out there," says Flaherty, if you want to hit your goal.
2) How Often Should You Check Your Holdings And Make Changes?
Financial planners say that right now, tax time, is the perfect time to make sure your retirement plans are in good working order. Depending on your age and asset levels, more frequent check-ups will be needed, but Flaherty says "most people like to re-balance on an annual basis." And it is a lot easier to do "as you prepare for tax season, with all your records close at hand."
So, make it a point to at least check once per year. Here are key questions to ask yourself when doing so: Are you making progress towards your goal? Are contribution levels up to date? And are your goals and objectives still relevant to what's going on in your life?
3) What Other Options Are There Beyond 401(k) plans?
While 401(k)s have replaced pension plans as the largest form of retirement savings, many Americans don't have access to them if they are self-employed, unemployed, or perhaps a public employee. But no matter where you work, Flaherty says "a workplace savings plan is certainly the first place to look" to get started.
After that, opening an individual retirement account or IRA can help you set more money aside in a tax-sheltered way. A Roth IRA is another similar route to take, but it carries its own set of tax and contribution rules you need to be aware of before investing.
4) What If I Need To Withdraw Money Before I Retire?
Because retirement accounts allow investments to grow tax-free, if you take money out of them before you retire you will usually pay a penalty for early withdrawal. While under-funding our retirement needs is the most common problem investors face, there is also a risk of over-contributing, Flaherty says, if you accidentally exceed the maximum allowable contribution levels that are set by the government. It is also important to set a level of contribution that is comfortable and doesn't stretch your budget too tightly.
5) What Can Be Done To Help Family Members Save For Retirement?
If you have a non-working spouse or a spouse with very little income, there are special programs available for this exact situation. A so-called spousal IRA is among the most popular and generally follow the same contribution levels and restrictions that would apply to your own account. Again, it is important to watch those levels and make sure that your contributions stay below the current $5,000 annual level, and remember that deductions are linked to your household income.