Saving for Retirement: How Much Do You Really Need?
It doesn’t matter what age you are or how long it will be until you retire – most people spend at least a little time wondering how much money they’ll need to save to continue to live the lifestyle they want after they’ve left the workforce. Having said that, understanding what you’ll need and actually achieving that goal are two entirely different things.
Given the fact that the stock market is currently down overall, not to mention that there is uncertainty in the economy, major inflation, and other financial stress to deal with, it’s natural for people of all ages to worry if they have enough money put away to successfully retire on. Thankfully, simply removing that uncertainty and coming up with a concrete (and most importantly realistic) number can help a lot of those worries go away.
Therefore, if you truly want to make sure that you’re saving enough money for retirement, there are a number of important things to keep in mind.
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The President, on December 29, 2022, signed the Consolidated Appropriations Act, 2023, which is the “omnibus spending bill” Congress needed to pass to avoid a government shutdown. That legislation also included the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act, a.k.a. the SECURE 2.0 Act, that can significantly impact and augment your retirement planning strategies. The SECURE 2.0 Act incorporates provisions from proposed legislation that was passed by the House and another bill that was passed by the Senate that had not previously been reconciled.
When you are attempting to defer the taxability of a capital gain, save money for your children’s future education or plan your retirement finances, you may do so in several ways, including investing in the stock market, buying real estate for income and appreciation, or simply putting money away in education savings accounts or retirement plans. Knowing how these various tax savings vehicles and income deferral opportunities function is important for choosing the ones best suited to your circumstances.
The IRS just released the inflation adjusted retirement plans maximum contribution amounts for 2023, and the increases are dramatic. So, this may be the time to start considering funding a retirement plan if you don’t currently have one. If you are already contributing to a tax-favored retirement plan and are looking for ways to increase your annual contribution, these inflation increases will be good news.
Your 401(k), IRA or other retirement accounts may be a tempting source for cash if you find yourself short of funds or have a major purchase you are considering. But withdrawing money from a traditional IRA or qualified retirement account before you reach age 59 1/2 may not be the best idea, as you will likely pay both income tax and a 10% early-distribution tax (also referred to as a penalty) on any previously untaxed money that you take out.