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August 20, 2024
Retiring in a financially secure position isn’t a sure thing. It takes planning and commitment to ensure you can retire comfortably and early enough to enjoy your golden years to the fullest. According to the U.S. Department of Labor, only about half of all Americans have calculated how much they need in order to save for retirement.
People are notoriously bad at thinking about and preparing for the distant future, doubly so when it requires them to save money. However, formulating a plan, developing savings habits, and understanding how Banks and other financial institutions factor into retirement planning is essential for achieving your retirement goals.
The best time to start saving for retirement was yesterday, and the next best time is today! Even before you develop a formal retirement plan, it’s important to get into the habit of putting money away into a savings account on a regular basis. Long-term savings plans rely on compound interest to turn even the most modest amounts of money into a sizeable fund for the future. So, the earlier you start saving, the more you can leverage the power of compound interest.
Start by putting a small amount of money into a savings account at the end of each month. As you grow more comfortable with your new budget, consider increasing the amount you deposit each month. The key is to make saving an automatic habit rather than something you need to actively consider each month.
Retirement is expensive. It’s important to understand that your retirement savings are there to replace your regular income once you stop working, so how much you save determines what your standard of living will be upon retirement. Take some time to list your current expenses and income and determine which of your regular expenses will change in retirement. For example:
The standard rule of thumb you will receive from financial planners is to replace 70 to 90 percent of your annual pre-retirement income through savings and Social Security. So, if you earn $80,000 per year before retirement, you’ll want to earn $56,000 to $72,000 per year in retirement.
New Tripoli Bank has a retirement calculator on our website to help you determine your savings target. Once you have calculated this number, you can use it to determine whether or not your savings contributions are enough to help you reach your goal.
Before you start looking into retirement accounts, you should determine what your Social Security benefits will be upon retirement. The amount of wages that Social Security replaces varies depending on your earnings and when you retire. The longer you wait to retire, the greater your Social Security benefit will be.
You can learn more about Social Security and calculate your expected benefits by visiting the Social Security Administration’s website: https://www.ssa.gov/
You should speak with your employer to understand what options they can provide to help you save for retirement. Many employers offer 401(k) plans, and some businesses still maintain traditional pension plans for their full-time employees. If your employer doesn’t offer a retirement plan, suggest that it start one. Your employer may be able to set up a simplified plan that can help you and your coworkers plan for retirement.
If your employer offers a 401(k) plan, you should ask if they do contribution matching and what stipulations exist to ensure that you get as much money as you can out of the plan. You should contribute as much as you comfortably can to this plan. Your taxes will be lower, you’ll be taking advantage of your employer’s contribution matching, and automatic deductions from each paycheck reduce your mental burden when it comes to saving.
Put Money Into an IRAAn Individual Retirement Account is similar to a 401(k), but instead of being an employer-sponsored retirement savings account, you assume responsibility for opening and contributing to the account. Much like a 401(k), the funds you contribute to your IRA are invested into a variety of investment products such as stocks, bonds, and certificates of deposit (depending on the type of IRA and the institution you are working with). This means an IRA will, on average, produce greater returns on investment than a standard savings account.
The tradeoff is that the funds in an IRA can’t be touched until you reach a certain age, and contributions to an IRA are limited to a certain amount each year (click here to learn more about contribution limits for the current year). There is also a penalty for withdrawing from your IRA before you reach age 59 ½.
There are two types of IRAs, traditional and Roth, and each one offers its own benefits. Traditional IRAs are tax-deferred, which means you make contributions from your income before taxes, and you will pay tax when you start receiving the money later in retirement. Roth IRAs are the opposite: the money contributed to a Roth IRA comes from post-tax income, but in exchange you do not pay taxes later when you start taking the money out in retirement. You are not limited to one or the other (though the annual contribution limit applies to all your IRAs combined), and each has its own benefits and downsides. After seeking advice from a financial planner, you can speak with one of New Tripoli Bank’s IRA specialists who can assist you in opening your desired IRA account.
You can also speak with our partners from the New Tripoli Financial Advisors for more information on other investment options.
No matter how ready you think you are, it can’t hurt to ask for advice. New Tripoli Bank offers both traditional and Roth IRAs, as well as Simplified Employee Pension IRAs. Feel free to contact me or reach out to your local New Tripoli Bank branch office to speak to a community banker who can walk you through opening a retirement account. We would be happy to help you plan for the future!
Jenna Smith is an Assistant Vice President and the Branch Manager for New Tripoli Bank's Claussville Office, as well as a certified IRA Services Professional who has worked for New Tripoli Bank since 2006. She completed the PA Bankers Advanced School of Banking and has been helping customers for many years. She has dedicated her career to learning all she can about banking and finance and in her free time enjoys spending time with her family and working on arts and crafts.
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