Preparing for Retirement

From Your First Job to Empty Nest

There’s no magic age to reach before you start planning for your retirement. It can begin anytime in adulthood, from your first job to becoming an empty nester. Thanks to the magic of compounding interest, the sooner you start, the better off you will be. They are many strategies on how to save for those golden years, and in this blog, we will share some things to consider when you start planning for your retirement.

Why Retirement Planning?

For most people, deciding to retire from full-time work marks a huge milestone. This transition from actively earning an income each day to living off your investments and enjoying more leisurely daily pursuits can be quite enjoyable and liberating, especially if you’ve saved enough money. This is why it is especially important to have a well-thought-out plan that can support the goals you’ve set once you retire.

At the heart of retirement planning is saving money, but where do you start? Should you speak to a financial advisor, open employer-offered retirement accounts, set up your own individual retirement account (IRA) or use another type of savings product? It’s best to first reflect on your goals for retirement, how much time you have on your side to save, and what tools to use to get there, according to Investopedia.com.

Preparing for Retirement

Think about the type of lifestyle you would like in retirement. How much would it cost to maintain that? Now, calculate how much time you will have to save for that. Unsure? Here are some steps to help make your planning go smoothly:

• Evaluate Your Current Life Stage: Retirement planning will look different for everyone because of their ages and unique financial situations. For example, a young adult worker who is decades away from retirement has the potential to save more over time and can be more aggressive when investing money as their longer time horizon allows investments time to recover from any down years. In contrast, older workers who are closer to retirement will want investments that have less risks to keep their nest eggs intact. According to Investopedia.com, saving for retirement can happen at every life stage but may require taking on less risk the closer you get to retirement.
• Determine Retirement Age: People generally begin transitioning to retirement around age 62, the earliest that an individual becomes eligible to receive Social Security benefits. Receiving Social Security benefits that early, however, has disadvantages. According to Nerdwallet.com, retiring at 62 could potentially sacrifice a portion of your benefits. If your health and other factors let you work until age 70, you could potentially maximize the amount you receive. Another factor in deciding your retirement age is how much you have saved or are planning to save in investments, IRAs, 401(k)s and other accounts.
• Determine Your Retirement Lifestyle: Once you retire from work, your income will change. Instead of receiving a steady paycheck that covers your everyday expenses, you will be relying on your retirement accounts. According to Nerdwallet.com, experts suggest replacing 70% to 90% of your annual preretirement income through savings and Social Security benefits.
  
  For example, a retiree who earns an average of $63,000 a year in income should expect to need $44,000 to $57,000 per year in retirement income, says Nerdwallet.com. Calculating how much you will be earning at the time of retirement will let you plan accordingly. Also, inflation has increased the cost of living significantly so the more you save, the better position you will be in.

Ways to Save

There are many ways that you can prepare for retirement, regardless of if it is around the corner or decades from now. If your employer offers a retirement plan such as an IRA or 401(k), be sure to take advantage of it. For example, some companies offer a dollar-for-dollar match to your 401(k) contribution up to a certain amount or percentage. That is free money intended to help grow your wealth.

Here is a summary of these types of accounts:

• 401(k): Typically offered by employers, this type of retirement account lets you grow your income in tax-deferred investment options chosen by your employer. Some employers also provide a match of your contributions up to a specific percentage. Contributions to a 401(k) are made pre-tax, which means they are taken out of your paycheck before income taxes are deducted. This reduces your taxable income the year you contribute. In retirement, however, withdrawals are taxed at your then-current income tax rate.
• Traditional IRA: A traditional IRA is set up by individuals and lets you make pre-tax contributions so you receive tax deductions upfront. For 2024, you can contribute up to $7,000, with an additional $1,000 for those age 50 and older. After age 59½ you can withdraw your funds without penalty but they will be subject to your then current-income tax rate.
• Roth IRAs: Roth IRAs work like traditional IRAs but there is no tax deductibility upfront. For 2024, the contribution limit to a Roth IRA was $7,000, with an additional $1,000 for those age 50 and older. You can withdraw your fund at any time after age 59½ without penalties or taxes. When a Roth IRA contains funds such as long-term investments in the stock market, that tax-free growth can be a very powerful wealth builder.

Other Savings Products

You can also save in a dedicated account at a credit union or bank. They offer several types of savings products, including money market accounts, certificates and savings accounts. These deposit accounts are federally insured up to $250,000 per account so you can save with confidence. While they do earn interest, they tend to not grow as much over time as investing in the stock market. As a tradeoff, these types of savings accounts carry little to no risk, giving you a straightforward benefit for your savings habit.

• Traditional Savings Accounts: Traditional savings accounts are a safe way to start saving for retirement. By automating your savings through direct deposit, you can build your savings faster and not have to worry about having to make a deposit or transfer each payday. Savings accounts usually pay the lowest yields but have the most accessibility. This nest egg could also serve as an emergency fund in case you need it, but be sure to replenish any funds from it to keep your retirement plans on track.
• Money Market Accounts: Money market accounts (MMAs) have many of the same features as traditional savings accounts but typically offer higher yields. MMAs are usually offered in tiers with higher yields assigned to higher balances. In many cases, savers can access their MMAs via writing a check or making a cash withdrawal at a branch.
• Share Certificates: Share certificates are another effective way to save for retirement. These federally insured accounts let you earn higher dividends than savings accounts. Certificates are usually offered for set terms, during which your funds will be locked in. Because your interest rate and term are set, early withdrawals are usually not allowed or there is a penalty. Certificates are good for those who do not anticipate needing their funds for the account term.

Trust Travis for Your Retirement Planning

If you are looking for savings options, Travis Credit Union has IRAs, money market accounts and certificate accounts so you can earn competitive yields on your savings. TCU is focused on your financial wellness and can help you learn how to plan, save, spend and borrow better.

If you need help with investment advice or saving money, Travis Financial Services (TFS) can help. Our financial advisors can craft a retirement strategy that fits your goals. If you are already retired, TFS can help with investment options that look out for your best interests. Schedule a free consultation today.

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