Retirement

Just One Percent More Can Make a Big Difference

• Consistently saving just 1% more for retirement may turn into meaningful retirement income over time.
• Compounding your 401(k), Traditional IRA, Roth IRA, returns even at one percent more each year over long periods of time can make a meaningful difference in retirement income. Does your retirement portfolio strategy emphasize enough “Growth” or is it overly focused on capital preservation?

Simple retirement planning actions today, taken early enough, can make the difference in your retirement income. For instance, just contributing one percent more into a tax-advantaged retirement account like a 401(k), or an IRA could make a difference in your lifestyle in retirement.

What does SECURE 2.0 Act mean for retirement investors? Retirement investors will be able to save longer, contribute more, and have more ways to invest for retirement.

Naming a Beneficiary to Your Retirement Account Fall 2022

Inflation’s Impact on Your Retirement Savings

Inflation is at an incredible level not seen since the 1980’s, The Consumer Price Index, which measures a broad range of goods and services, rose 8.6% in May, the fastest advance in more than 40 years. A U.S. Bureau of Labor Statistics (BLS) report shows inflation figures for various decades. In the 1970’s inflation averaged 7.4%, in 1980’s inflation averaged 5.1%, 1990’s averaged 2.6%, in the 2000’s averaged less than 2%, (1.7%) in the 2010s. From the 1970’s through year-end to 2021, inflation averaged about 3%, however, inflation’s impact on the value of your retirement savings compounds over time. Inflation can gradually reduce its worth overtime. For instance, thanks to inflation, from the start of 1980, the purchasing power of a dollar fell more than 70% by the end of 2021. One dollar left under a mattress in 1980 is worth about thirty cents today. In other words, everything became 70% more expensive to buy. Inflation can reduce the purchasing power of your retirement savings thereby possibly jeopardizing fixed income retirees’ retirement plans.

A Couple of Things You Can Do to Manage It

The answers to 4 key retirement planning questions

1. How much should I save each year for retirement? Aim to save at least 15% of your income annually—start as soon as you can.

2. How much do I need to save for retirement? Save 10x your income by age 67.


3. What will my savings cover in retirement? Plan for your savings to provide 45% of your pretax, preretirement income.

4. How can I make my retirement savings last? Withdraw no more than 4% to 5% from savings yearly, with adjustments for inflation.

Contact Aspetuck Financial Management if you would like to discuss your retirement planning. We can review a checklist of items you must address in order to retire on time and once.

First of all, your life expectancy is longer, potentially into your 90s, which means you may need to save more than what your 401(k) retirement savings plan allows. Secondly, the cost for everything in retirement is going up, especially healthcare. Save more for retirement by opening supplemental retirement account to your 401(k) to minimize risks of a retirement fund shortfall. This may be more financially feasible for families in their fifties who are finished with college expenses. Always "max out" your company 401(k) contributions before considering a supplemental individual retirement account.

Aim to save at least a total of 15% of your pretax income each year from an early age of 25 until age 67 as a rule of thumb. Of course, save more if possible. Together with other steps, it should help ensure that you have enough income to maintain your current lifestyle in retirement. While 15% may seem like a lot, if you have a 401(k) or other workplace retirement account with an employer match or profit sharing, that employer match or profit- sharing counts toward your annual savings rate.

Federal law requires you to designate your spouse as the beneficiary for your 401(k) unless your spouse has signed a written waiver. Unlike a 401(k) plan, you aren’t required to name your spouse as the beneficiary of your IRA (unless you live in a community property state, see IRS Publication 555 here for a list of those states).

It is important to review basics areas of retirement planning to prepare to retire on time and once. Reviewing financial planning subjects such as health insurance, budgeting, retirement savings, estate planning are just a few areas to review with your Financial Advisor.

The biggest difference between a Roth 401(k) and a traditional 401(k) is how and when you get a tax break. Thus, most advice on the Roth 401(k) vs. traditional 401(k) topic depends on the following question: Does the benefit of a tax-deductible contribution now, outweigh the benefit of tax-free withdrawals in retirement, after your account has grown?

Often it's the little things in life that can make the biggest difference. That's true when it comes to saving for retirement. Putting just 1% more into a tax- advantaged retirement account like a 401(k), or an IRA could make a noticeable difference in your lifestyle in retirement.

Once you know where you are going, it becomes a lot easier to plan to get there, and to measure your progress along the way. When it comes to saving for retirement, set a course for maintaining your current lifestyle in retirement—and plan for your savings to provide 45% of your pre-retirement income.