How Much To Save For Retirement?

Going through a series on saving can make you question what you are ultimately saving to have. Is it for a sense of security? Peace of mind? Or the desire to expedite the ability to be financially free and retired?

As we went through the typical recommendation of saving 10-15% of your income, once you get past your $500, $1,000, $3,500, and even 6-months of living expense mark, you will no longer want to necessarily just have that money sitting in a bank account. So what are your options? Well, you have many.

#1: Sponsored 401(k) or 403(b) Plan + Company Match

If you work a job with a sponsored 401(k) or 403(b) plan, you will want to see if you can take advantage of a company match. This match is basically free money. Now, you may not love the plan that your employer has opted into, but having a match is what you will want first to maximize your savings before moving on to another plan.

#2: Roth IRA Account

Once an employer plan match is met, which may require you to work up to a certain figure, you will want to look at opening a Roth IRA account. Roth IRA’s have a federal limit of $6,000 per year for those under 50 and a catch-up amount of an additional $1,000 if you are above 50. If you are married, both you and your spouse should have a separate Roth IRA that you are maxing. Before utilizing a legal back-door option, there are also income limits to continue taking advantage of this provision.

#3: Individual Retirement Account

Once you take advantage of both your company match and max your Roth IRA, you will want to open an individual retirement account that will then be able to be utilized for additional retirement savings. At this point, some people also go back to their company-sponsored plan and opt-in for a Roth 401k (if available), continuing to max out the sponsored limits of $19,500. If you are above the age of 50, you could also take advantage of a catch-up contribution of $6,500.

Options for Self-Employed

If you are self-employed, there is a retirement plan called a solo-401k, individual 401k, or simply self-employed 401k. You get to take advantage of $19,500 and $6,500 catch-up prospectively, as well as up to 25% of your compensation beyond that. Or you can take advantage of up to $58,000 per year in combined contributions or $64,500 if you are above 50.

Additional Opportunities for Retirement Savings

Many people get a certain amount of retirement savings going, but then they spend the rest on lifestyle. As their incomes rise, they do not diversify those savings to protect against the collapse of an asset class. Once you have surpassed these steps and maximized your total retirement savings, you will want to explore other opportunities such as starting a business, purchasing a franchise, or buying a rental property. But before proceeding, you should look back at your vision, what type of “retirement” you want to live, and how soon you want to achieve it. Your idea of retirement may not be you sitting somewhere on a beach, but instead, you may want to give back in some way, mentor the next generation, or take on a hobby that would allow you to make an income selling products as an artisan. Make sure to take time to evaluate which, if any, of these components are in your retirement plan and from there work on developing a plan.

It’s so easy to get distracted by life and never fully invest time into sorting out your retirement savings. But your legacy depends on you having a plan for your savings.