YOUR MONEY
A Stage-by-Stage Guide to Retirement Planning
By Bill DeMarco
The latter stage of your career can bring a variety of challenges and opportunities. Older children typically come with bigger expenses. College bills may be making their way to your mailbox or inbox. You may take time off unexpectedly to care for aging parents, a spouse or yourself. As your body begins to exhibit the effects of a life well lived, health care expenses begin to eat up a larger portion of your budget. And those pesky home and car repairs never seem to go away.
On the other hand, with 20+ years of work experience behind you, you could be reaping the benefits of the highest salary you’ve ever earned.
Now What?
With more income at your disposal, now may be an ideal time to kick your retirement savings plan into high gear. If you’re 50 or older, you may be able to take advantage of catch-up contributions, which allow you to contribute up to $30,500 to your employer-sponsored plan in 2024 (up from $30,000 in 2022), versus a maximum of $23,000 for most everyone else (up from $22,500 in 2023).
In addition, if you haven’t yet met with a financial professional, now may be a good time to do so. A financial professional can help you refine your savings goal and investment allocations, as well as help you plan for the next stage.
Preparing to Retire
With just a few short years until you celebrate the major step into retirement, it’s time to begin thinking about when and how you will begin drawing down your retirement plan assets. You might also want to adjust your investment allocations with an eye toward asset protection (although it’s still important to pursue a bit of growth to keep up with the rising cost of living). A financial professional can become an important ally to help with the decisions you will face at this important juncture.
You may want to discuss:
- Health care needs and costs, as well as retiree health insurance
- Income-producing investment vehicles
- Tax rates and living expenses in your desired retirement location
- Part-time work or other sources of additional income
- Estate planning
You’ll also want to familiarize yourself with the required minimum distributions (RMDs). The IRS requires that you begin drawing down your retirement plan assets by April 1 of the year following the year you reach age 73. If you continue to work for your employer past age 73, you may delay RMDs from that plan until the year following your actual retirement.
Other Considerations
Throughout your career, you may face other important decisions involving your retirement savings plan. For example, if your plan provides for Roth contributions, you’ll want to review the differences between these and traditional pre-tax contributions to determine the best strategy for your situation. While pre-tax contributions offer an up-front tax benefit, you’ll have to pay taxes on distributions when you receive them. On the other hand, Roth contributions do not provide an up-front tax benefit, but qualified withdrawals will be tax-free. Whether you choose to contribute to a pre-tax account, a Roth account, or both depends on your goals.
Finally, as you make decisions about your plan on the road to retirement, be sure to review it alongside your other savings and investment strategies. While it’s generally not advisable to make frequent changes in your retirement plan investment mix, you will want to review your plan’s portfolio at least once each year and as major events (marriage, divorce, birth of a child, job change) occur throughout your life.
