Financial Tips

Financial Strategies for Retirement

Retirement Planning

Financial security in retirement doesn’t happen overnight. Preparing for a financially healthy retirement requires planning, commitment, and money. Did you know only about half of Americans have calculated how much they need to save for retirement? It’s believed that many are not sure where to start – and that’s where we come in. We’re here to guide you with our financial retirement strategy to help you better plan. 

Set the Foundation of Retirement Planning

There are many benefits to starting your retirement planning early in life. Some of these benefits include compound interest, stress management, tax benefits, investment growth, and financial security. Although there are many other benefits, these are the biggest ones to understand while we guide you through these strategies. 

Compound Interest

Thanks to compound interest, you can earn more interest if you start saving early. This means that the money you contribute today could earn interest, and the resulting sum could earn additional interest (earning interest on interest). 

Stress Management

Financial stress hits most of us throughout life–there’s no question about that. That’s why it’s crucial to start saving for retirement early to spare yourself that stress when you’re nearing retirement. Knowing you have money saved away so you can retire as you imagined is a large weight off your shoulders. 

Tax Benefits

Whether you choose a 401K, a traditional IRA, a Roth 401K, or a Roth IRA, you’ll enjoy tax benefits when saving with these retirement accounts. The funds you put toward a 401K or traditional IRA are tax-deferred, meaning you won’t be taxed until you withdraw funds at retirement age, lowering your current income taxes.

In contrast, a Roth 401K and a Roth IRA differ slightly as they don’t offer the same upfront tax break. However, Roth accounts have their benefits: withdrawals are generally tax-free, meaning tax benefits come at retirement age when you take that money out of your account. 

Investment Growth

When you start your financial retirement strategy early, you can be more aggressive with your investment strategy. When retirement is still a ways away, you can invest in assets that may be more volatile but offer higher potential returns, like stocks. As you near retirement age, you can shift your portfolio into more conservative investments like bonds or fixed-income assets to protect your savings. 

Financial Security

Starting your savings early leaves you with more money accumulated over the years. When it’s finally time to retire, you can have peace of mind knowing you’re financially stable and secure. You can take advantage of your retirement savings by buying the house you wanted, the vehicle, having money for your favorite hobbies, or taking your family (or yourself) on trips. Regardless of what your goals are for the future, financial security provides that relief. 

Saving for Retirement

A big part of a financial retirement strategy is saving. If you’re ready to jump in and start saving for retirement, let’s go over a few things before throwing a sum of money into a savings account. It’s crucial to have an emergency fund before focusing on retirement savings. Our world is unpredictable from many angles, and finances are among the most unexpected. Ensure you have a certain amount of money put away for any type of emergency that may come your way. 

Another step to take is to pay yourself first. We encourage you to automate savings to ensure consistency. This also builds discipline, leverages compound interest, and reduces financial stress. 

Budgeting is another large part of this process. Learn the best budgeting tips and strategies to cut unnecessary expenses and redirect funds toward retirement savings. If you need guidance on these tips, visit this blog!

Understanding Retirement Accounts

There are many different retirement accounts to understand before you choose which benefits you the most. Let’s get into what these all mean and what they entail.

401K & Employer-Sponsored Plans

A 401K is an employer-sponsored retirement plan that allows employees to save a portion of their pre-tax income, reducing their taxable income. At the same time, investments grow tax-deferred until withdrawal in retirement. Many employers offer matching contributions, which is essentially free money. Withdrawals before age 59 ½ typically incur a 10% penalty, except in specific cases. To maximize benefits, contribute enough to get the full employer match, increase contributions over time, and diversify your investments. 

IRAS (Individual Retirement Accounts)

IRAS are personal retirement savings accounts with tax advantages. A traditional IRA allows you to contribute pre-tax income, reducing your taxable income for the year, and your investments grow tax-deferred until withdrawal in retirement when they’re taxed as ordinary income. A Roth IRA is funded with after-tax dollars, so contributions don’t reduce current taxable income, but withdrawals in retirement are tax-free, including earnings, provided you meet certain conditions. Both offer flexible investment options and are ideal for supplementing employer-sponsored plans. 

Health Savings Accounts (HSAs)

A Health Savings Account, or HSA, is a tax-advantaged savings account for individuals with high-deductible health plans to save on medical expenses. Tax-deductible contributions grow tax-free, and withdrawals for qualified medical expenses are also tax-free, creating a triple tax advantage. 

Self-Employed Options

SEP IRAs and Solo 401Ks are retirement plans tailored for freelancers and small business owners. Both plans provide tax-deferred growth, but Solo 401Ks also allow Roth contributions and loans, offering greater flexibility for retirement savings. 

Investing for Retirement

Assess your risk tolerance based on your age, goals, and comfort with market fluctuations. Then, choose a mix of stocks (higher risk, higher return), bonds (lower risk, stable income), and other assets like real estate, to balance growth and stability. 

Index Funds and ETFs are low-cost, diversified investments that track market indexes. They reduce risk and fees while providing broad market exposure. 

Rebalancing your portfolio allows your investments to maintain your desired asset allocation, ensuring alignment with your goals and risk tolerance. However, it’s important to stay disciplined and avoid emotional decisions. Trying to time the market or pay higher fees can erode long-term returns. 

Create a Personalized Retirement Plan

You should tailor your financial retirement strategy to your unique goals. Estimating your retirement expenses is important to understand before you start saving. You need to figure out how much housing, healthcare, travel, etc., will cost you so you can understand how much you realistically need to save. A great way to start saving is by following the 4% rule. This suggests withdrawing 4% of your savings annually in retirement to ensure your money lasts 30+ years. Remember to adjust for factors like inflation, healthcare costs, and lifestyle changes when calculating. 

Tips & Tricks for a Comfortable Retirement

Maximize your financial retirement strategy with these tips and tricks:

  • Maximize Employer Contributions: Always contribute enough to get the full employer match.
  • Catch-Up Contributions: Take advantage of higher contribution limits for those ages 50 and older.
  • Delay Social Security: Wait until full retirement age or later to claim Social Security.
  • Downsize or Relocate: Consider reducing housing costs by moving to a smaller home or a more affordable area.
  • Stay Healthy: Do everything you can to ensure your health stays up to par. As soon as you need healthcare beyond the average care, you’ll be dipping into that retirement savings. 

Common Retirement Planning Mistakes to Avoid

It’s in our nature to make mistakes and learn from them. However, when it comes to saving for your retirement, you want to ensure that you try not to make any mistakes so you can enjoy your retirement as planned. Here are some common retirement planning mistakes and how to prevent them:

Not Saving Enough

Not saving enough money is a big one. The rule of thumb is that you’ll need 80% of your working income in retirement to maintain your lifestyle, but it’s not cut-and-dry. Variables like working longer than retirement age and illnesses can lower or increase your saved amount. So, how do you prevent this? 

Determine how much you’ll need each month in retirement and ensure you include unexpected health issues. To prevent a savings shortage, increase your contributions to a company-sponsored retirement savings account, delay your retirement for a few more years, get a part-time job, sell your used goods, and look for ways to reduce spending.  

Claiming Social Security Benefits Prematurely

You can apply for benefits at age 62, but the benefit you receive will be up to 30% less than it would be if you waited until what the Social Security Administration deems “full retirement age”.

In addition, you shouldn’t rely only on Social Security benefits since they are designed to supplement your income, not replace it entirely. Instead, diversify your income sources by incorporating savings, pensions, and investments which can provide a more stable and reliable financial foundation.

Overlooking Estate Planning

Estate planning helps you manage and distribute assets according to your wishes. This could also minimize taxes and legal complications for your heirs. Create a will, set up trusts, and designate beneficiaries for your accounts. 

Not Seeking Professional Advice

Retirement planning can be complicated, but professional guidance can offer valuable insight and strategies specific to one’s financial situation. Work with a financial advisor to create a plan, help rebalance investments, and assess how to reach your retirement goals. 

How American Legacy Solutions Can Help With Your Financial Retirement Strategy

The American Legacy Solutions team provides retirement and financial services tailored to you. Whether you’re securing your future or managing debt, our expert advisors are your trusted partners. We help with:

  • Estate Planning
  • Financial Retirement Strategies
  • Healthcare
  • Long-Term Care
  • Life Insurance
  • Legacy Safeguard
  • Debt Management Strategies
  • Wealth Management
  • Education Funding

We start by listening, educating you on your life’s different phases and concerns, and then invest time in finding the right solution for your unique concerns. Let American Legacy Solutions help with your financial retirement strategy today.