retirement - RCB Bank

Saving for retirement can be overwhelming. This is especially true for the 44% of Americans who feel they aren’t on track to meet their retirement savings goals, according to a recent report by the Federal Reserve. So how can you improve your retirement savings? First, you need to know the difference between common retirement investment accounts. Once you understand your investment options, then you can meet with your financial advisor to create a financial strategy that works for you.

IRA vs. 401(k)

Almost anyone can open and contribute to an IRA. All you need is to be under 70 ½ years old and have earned income. Earned income includes wages, salaries, tips, commissions and nontaxable combat pay. One advantage of IRAs is they offer tax-free growth. Once you put money in the account, the dividends or growth of that money are not taxed in the future. In addition, IRA contributions are often pre-tax dollars, which means you can likely deduct them and lower your current tax bill. Traditional IRAs are taxed when you withdraw the money and you must start withdrawals at 70 ½ or there are penalties. IRAs also have lower caps on the total amount you can contribute.

There are several different types of 401(k) plans, including traditional, safe harbor, SIMPLE, Roth, and solo plans. All of these are investment accounts that allow employees to contribute a portion of their wages to retirement savings. If your workplace offers a 401(k) plan, you should contribute regularly. If they match your contributions, contribute up to the maximum match if possible. Don’t pass up free money for your retirement.

You may also contribute significantly more money to a 401(k) per year than to a traditional IRA. For instance, in 2020 the 401(k) contributions increased to $19,500 per year if you are under age 50 and $26,000 if you are over age 50. Traditional IRAs currently have $5,000 and $6,000 limits respectively.

Roth IRA and 401(k) Benefits

When you pay taxes on your retirement investments depends on the kind of account you choose. If you choose a Roth IRA or 401(k), your contributions are taxed when you put the money in, but withdrawals are tax-free. This is helpful in retirement, especially if you are on a fixed income. There are also conditions in which you can pull money out of your IRA and avoid the 10% early withdrawal penalty. This includes if you withdraw money because of a disability, are a first-time homebuyer or if the withdrawal is made by a beneficiary after your death.

Create an Investment Strategy

Once you understand the basic investment account options, it is time to talk with a wealth advisor. Your wealth management strategy should build sustainable income, diversify your portfolio of stocks and bonds and focus on growth that outpaces inflation. When you meet with a wealth advisor, explain your retirement goals and ask the following questions:

How is the account invested?
What is the expected return?
How long can the account produce that level of income?
Can we define how much is reasonable to withdraw from a retirement account?

Whether you are a customer or not, RCB Bank is here to help. Our wealth advisors can help with all of your questions about retirement investments. Give us a call at 855-226-5722 or visit RCB Bank here.

Sources

The Fed – Retirement (federalreserve.gov)

Retirement Plans | Internal Revenue Service (irs.gov)

When it comes to investing, there are risks. Consult a financial advisor before beginning any investment plan. Opinions expressed above are the personal opinions of the author and meant for generic illustration purposes only. The monthly interest calculation expressed above is not for any specific account type and is meant for generic illustration purposes only. Investment products are not insured by the FDIC. Not a deposit or other obligation of, or guaranteed by the depository institution. Subject to investment risks, including possible loss of the principal amount invested. Wealth advisors do not provide tax, legal or accounting advice. Seek advice of professional tax consultant.

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By Nate Haberman, AAMS^®, Financial Advisor

By the year 2040, it is projected that 14.6 million Americans will be 85 years old or older. This is triple in population from 6.5 million in 2014, according to the Administration of Aging¹.

Are you prepared financially to live longer? If you’re age 20 or older, retirement planning should be one of your top priorities. Not sure where to begin? I asked Nate Haberman, AAMS® Financial Advisor at RCB Wealth Management to share a few tips.

Figure out your retirement income needs.

Use your current expenses as a starting point. Don’t forget to factor in items like travel, new vehicles and healthcare expenses.

“A financial plan does not have to be complicated,” Haberman said. “Its purpose is to help you get from where you are to where you want to go, as well as improve the odds that you won’t outlive your money in retirement.”

Invest in your employer-sponsored retirement plan or an individual retirement account.²

Start now.

“It can be hard to plan for retirement when you are living paycheck to paycheck,” said Haberman. “But, a small amount is better than no amount. Setting aside a little bit each month will add up in the long run, especially if your employer matches a percentage of your contributions.”

Build an emergency fund.

Prepare for the unexpected and avoid tapping into your retirement savings.

“At one time or another, an expense will come up that you didn’t plan for – car repair or hospital visit,” said Haberman. “An emergency fund is there to help manage the financial risks of unforeseen expenses and potentially lessen some stress. Plus, early withdrawals from retirement accounts often have tax penalties assessed to them.”

Revise your plan along the way.

Life happens. Plan, prepare, review and adjust regularly in order to stay on track of your goals.

“A professional advisor can assist you through realistic expectations in your planning, while taking into consideration items like the age you plan to retire, inflation and taxes,” said Haberman. “A professional can walk you through all the available tools so you can better understand your options.”

While having a plan doesn’t guarantee a successful retirement, it may help you alleviate possible hardships, and allow you to live the life you want during your golden years.

Source:

¹U.S. Department of Health and Human Services Administration for Community Living. Administration of Aging Profile of Older Americans: 2015. Retrieved from http://www.aoa.acl.gov/aging_statistics/Profile/2015/2.aspx

²Investing involves risk, including the possible loss of principal and there can be no assurance that any investment strategy will be successful. Before investing, carefully consider the risks, charges and expenses of the investment.

Opinions expressed above are the personal opinions of the author and meant for generic illustration purposes only. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investments mentioned may not be suitable for all investors. The material is general in nature. Past performance may not be indicative of future results.

Investment products are not insured by the FDIC. Not a deposit or other obligation of, or guaranteed by the depository institution. Subject to investment risks, including possible loss of the principal amount invested. Ask for details.

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Understand your Retirement Plan