7 Steps to Get Your Retirement Plan Back on Track
2020 has thrown quite a few wrenches into people’s retirement plans. Here are a few ways you can begin getting back on track in the second half of the year.
- Make Catch Up Contributions if you can
For 2020, 401(k) contributions are limited to $19,500 for most people, but if you’re 50 and older, you can make an additional catch-up contribution of $6,500 this year. That means older savers can contribute up to $26,000 in a 401(k) plan in 2020.
With an IRA, the maximum amount you can contribute for 2020 is $6,000 if you’re younger than age 50. However, people age 50 and older can add an extra $1,000 per year as a catch-up contribution, bringing the maximum IRA contribution to $7,000.
- Consider a Roth Conversion
With a Roth IRA, you pay tax now, but withdrawals in retirement are tax free. So, it’s a pay me now or pay me later situation.
If you do convert a traditional IRA to a Roth IRA, you pay tax on the transferred funds in the year of conversion. However, doing it in 2020 might be a good move in the long run if you can handle the additional tax this year.
- Pay off any 401(k) Loans as soon as possible
If you have a 401(k) loan, pay it off as soon as possible. Otherwise, you’re putting your short-term needs ahead of your long-term goals. The purpose of a 401(k) is to save for your retirement, and if you borrow from this account, it may lead to your retirement being inadequately funded. Also, the money you borrow is no longer being invested, so you’ll miss out on any potential growth for the duration of your loan.
- Work Longer than you planned
If you’re still employed during the pandemic, but you’re close to retirement, consider staying on the job for a few more years. This will make a huge difference in your retirement savings because you can continue making contributions to your retirement funds and hold off tapping into them. You’ll also be able to delay taking Social Security right away, which means you’ll earn a bigger benefit when you do start receiving benefits.
- Stick with Equites
Believe it or not, now is the perfect time to invest in the stock market for retirement savings if you have a little disposal income.
Long-term investors should also consider dollar-cost averaging. With this strategy, you invest in the market in regular, equal portions over time. This allows you to buy more shares when they’re cheaper, and fewer shares when they’re more expensive. In the end, you may get a lower average cost basis when compared to investing the same amount of money at once.
- Review Your Social Security Strategy
Social Security will undoubtedly be a major part of your retirement plan. Unlike the stock market, that part of your income won’t go down and will be adjusted for inflation yearly. That’s why it’s important to consider when you’ll start collecting benefits.
You can start taking Social Security at age 62 if you think you need it, but your benefits will be permanently reduced by up to 30%. Full retirement age is at 66 if you were born between 1943 and 1954. It gradually increases to 67 for people born between 1955 and 1960 – and then stays at 67 for everyone born after 1960. If you can afford it, however, think about waiting until age 70 to claim benefits because they will increase 8% per year if you wait to take them.
- Trim Your Expenses
To free up more money for retirement savings, try to reduce any expenses that you can, even if they’re small because it all adds up. Some ideas include eating out less often, cutting your cable bill, or replacing your car less frequently. If you work in a city where you can get by with public transportation, consider selling your car and getting rid of associated expenses (like insurance, gas, maintenance, etc.) to help pad your retirement accounts.
If you are unsure about your retirement plans due to this years events, give us a call at 610-825-3540. We would be happy to site down with you and figure out a plan to get you back on track.