To ensure you have enough money to live happily after you stop working, be sure to maximize contributions, diversify your savings and keep track of all your assets. Understand how different income s can affect your Social Security benefits, and make a schedule for post-retirement distributions that makes the most of each account's earning potential.
Maximize ContributionsMaximize your contributions to your personal or employer-sponsored retirement savings plan. If you participate in a 401(k) or other qualified plan, be sure to defer as much as you can reasonably afford from each paycheck. If your employer offers a matching contribution, try to make contributions that can maximize the value of your employer's match. If your employer matches up to 6% of your annual salary, for example, try to defer at least 6% of each paycheck to get the most bang for your buck.
For 2015 and 2016, the maximum annual employee contribution to a 401(k) plan is $18,000, with a maximum total contribution limit, including employer match, of $53,000. If you are over age 50, you can contribute an additional $6,000 each year for a total contribution limit of $59,000.
If you have an individual retirement account (IRA), your annual contribution limit is $5,500 per year, or $6,500 if you are over 50.
Spread the WealthWhile most long-term employers offer some type of retirement savings plan, don't rely solely on these programs if you don't have to. If you don't already have an IRA, consider opening one in addition to your employer-sponsored account so that you can increase the amount of money you save each year. If you have a 401(k) and an IRA, you can contribute an annual maximum of $23,500 in 2015 and 2016, or $30,500 if you're over 50.
If your tax burden isn't too high, consider opting for a Roth IRA to take advantage of tax-free earnings on your contributions when you take withdrawals after age 59.5.
If you hold both a 401(k) and an IRA, do your best to contribute to both. Focus on maximizing your contributions to employer-sponsored plans first to take advantage of employer matching.
Know Your AssetsDepending on what type of plan your employer offers, you may be able to opt for a self-managed plan or one in which your contributions are automatically invested in accordance with the plan's goals. In either case, educate yourself about the different investment options available to you and the expenses associated with each option. Many 401(k) plans carry hefty administrative fees or only provide access to mutual fund investments with high expense ratios. Keep track of your own account and make sure you fully understand your options so you can avoid losing money to unnecessary fees.
Keep track of the Social Security benefits that will be available to you at retirement. Any income you receive from retirement accounts or pensions can impact the amount of your benefit, so factor in all your various income s when planning for retirement.
Make a ScheduleEven if you intend to work well into your twilight years, remember that most retirement savings plans include minimum distribution requirements and may carry heavy penalties for participants who neglect to begin withdrawals by a certain age. Roth IRAs often do not carry such requirements, which is yet another benefit of Roth accounts. However, most other plans set the age of required minimum distribution (RMD) at age 70.5. Similarly, you are required to begin taking Social Security benefits by age 70.
If you have multiple s of retirement income, be sure to make a schedule for when you will begin to take withdrawals from each account. If you have a Roth IRA, for example, put off taking withdrawals until you have exhausted funds from accounts that carry RMD requirements. In addition to being an efficient way to spread out your savings, this type of scheduling allows your Roth account to continue to accrue tax-free earnings while you collect from other accounts.