Retirement & Savings Planning

Maximizing Your 401(k) Benefits

A 401(k) is one of the most powerful retirement savings tools available, offering tax advantages and often employer matching contributions that can significantly boost your retirement savings.

2024 401(k) Contribution Limits

• Employee Contribution Limit: $23,000 per year
• Catch-up Contribution (Age 50+): Additional $7,500 per year
• Total Contribution Limit: $69,000 per year (including employer match)
• Total with Catch-up: $76,500 per year for those 50 and older

Types of 401(k) Plans

• Traditional 401(k): Pre-tax contributions, taxed upon withdrawal
• Roth 401(k): After-tax contributions, tax-free withdrawals in retirement
• Safe Harbor 401(k): Automatic employer contributions, no discrimination testing

Key 401(k) Strategies

• Get the full match: Always contribute enough to receive your full employer match
• Increase contributions annually: Boost contributions by 1-2% each year
• Use automatic increases: Many plans offer automatic escalation features
• Consider Roth options: Especially beneficial for younger workers
• Rebalance regularly: Maintain your target asset allocation

Understanding IRA Options

Individual Retirement Accounts (IRAs) provide additional tax-advantaged ways to save for retirement, whether you have access to a workplace plan or not.

Traditional IRA

How it works: Contributions may be tax-deductible, investments grow tax-deferred, withdrawals in retirement are taxed as ordinary income.

• 2024 Contribution Limit: $7,000 per year ($8,000 if age 50+)
• Tax Deduction: May be limited if you have a workplace retirement plan
• Required Distributions: Must start at age 73
• Early Withdrawal: 10% penalty before age 59½ (with exceptions)

Roth IRA

How it works: Contributions are made with after-tax dollars, investments grow tax-free, qualified withdrawals are tax-free.

• 2024 Contribution Limit: $7,000 per year ($8,000 if age 50+)
• Income Limits: Phase-out begins at $138,000 (single) / $218,000 (married)
• No Required Distributions: Can leave money to grow indefinitely
• Contribution Access: Can withdraw contributions penalty-free anytime

IRA vs. Roth IRA Comparison

Backdoor Roth IRA Strategy

High earners who exceed Roth IRA income limits can use the "backdoor" method:

1. Make a non-deductible contribution to a traditional IRA
2. Convert the traditional IRA to a Roth IRA
3. Pay taxes on any gains during the conversion

Note: This strategy has tax implications and should be discussed with a financial advisor.

How Much Do You Need for Retirement?

Retirement planning involves determining how much money you'll need to maintain your desired lifestyle after you stop working. This requires careful consideration of expenses, income sources, and inflation.

Common Retirement Planning Rules

• The 4% Rule: Withdraw 4% of your portfolio in the first year, adjust for inflation thereafter
• 10x Income Rule: Save 10 times your final working year's income
• 80% Replacement Rule: Plan to replace 80% of your pre-retirement income
• 25x Expenses Rule: Save 25 times your annual expenses

Retirement Income Sources

Retirement Savings by Age Benchmarks

Fidelity suggests these retirement savings milestones based on your annual salary:

• By age 30: 1x your annual salary
• By age 40: 3x your annual salary
• By age 50: 6x your annual salary
• By age 60: 8x your annual salary
• By age 67: 10x your annual salary

Retirement Planning Strategies

• Start early: Time is your most powerful tool for building wealth
• Maximize employer matches: It's free money for your retirement
• Increase contributions regularly: Boost savings with raises and bonuses
• Diversify your accounts: Mix of traditional and Roth accounts
• Plan for healthcare costs: Consider HSAs and long-term care insurance
• Review and adjust: Regularly reassess your retirement plan

Common Retirement Planning Mistakes

• Starting too late or not saving enough
• Not taking advantage of employer matches
• Cashing out 401(k)s when changing jobs
• Ignoring inflation in retirement planning
• Not planning for healthcare costs
• Having too conservative an investment approach when young
• Not diversifying retirement account types

Social Security in Your Retirement Plan

Social Security provides a foundation of retirement income for most Americans. Understanding how benefits work can help you make informed decisions about when to claim and how to maximize your benefits.

How Social Security Benefits Are Calculated

• Earnings History: Based on your highest 35 years of earnings
• Full Retirement Age: Varies by birth year (66-67 for those born 1943-1960)
• Primary Insurance Amount (PIA): Your full benefit at full retirement age
• Cost of Living Adjustments: Annual increases based on inflation

When to Claim Social Security

• Age 62 (Early): Reduced benefits (75-80% of full benefit)
• Full Retirement Age: 100% of calculated benefit
• Age 70 (Delayed): Increased benefits (132% of full benefit)

Strategies to Maximize Benefits

• Work at least 35 years: Replace lower-earning years with higher ones
• Delay claiming until age 70: Earn delayed retirement credits
• Coordinate with spouse: Optimize claiming strategies for couples
• Consider tax implications: Social Security may be taxable

Important: Create an account at ssa.gov to view your estimated benefits and earnings history. Check annually to ensure accuracy.