My Comments: For some of us, saving up for retirement is history. If there’s not enough money, you can perhaps generate some income, but beyond that, worrying about money is likely with you for the rest of your life.

This blog post is about the use of time and steps to take before it runs out. Unless you plan to die before you reach retirement age, you will get there, and if you don’t have enough money, good luck.

I’m currently working with the widow of a couple who became my clients some 30-35 years ago. She’s now coming to terms with living alone but cannot stop freaking out about how she might run out of money. He had what most people would think of as a menial job. But she has over $500K in free and clear assets, and zero debt. She will continue to live in their comfortable house, in a lifestyle similar to how they lived before he passed. But every time we meet, she mentions a group of widowed women from her church who meet to support each other. Almost all of them have virtually no money which they can’t stop talking about in every group meeting. I suggested she stop meeting with them.

This post idea showed up in an email feed the other day and I felt it should be shared with whomever still follows my now infrequent blog posts. And don’t forget to check out one of my eBooks, the Dynamics of Retirement. Send me an email and I’ll make sure you have access to a free copy.

By Kelly Lavigne, JD ~ 5 June 2023 ~ https://tinyurl.com/e6m3z3d3

Time is one of your greatest assets or your worst enemy when planning for retirement.

The earlier you start saving for retirement, the more time that money has to grow. That means you have to save fewer dollars earlier in order to achieve your financial goals later.

But many people feel like time is running out for them to save. The majority of Americans (66%) worry that if they don’t increase their retirement savings soon, it will be too late for them to have a comfortable retirement, according to the latest Quarterly Market Perceptions Study* from Allianz Life Insurance Company of North America. This is up from 61% last year.

In particular, Millennials and Gen X are starting to hear the retirement clock ticking. While 76% of Millennials and 73% of Gen X said they worry about increasing savings soon for a comfortable retirement, just 48% of Baby Boomers said the same.

A lack of savings presents risks to your retirement — either not enjoying any comforts or, even more dire, running out of money. This risk is one of many people’s greatest fears about retirement. It is never really too late for you to increase savings and plan for retirement unless you have already retired. Here are five ways to step up your retirement savings today.

1. Take advantage of all benefits through your employer.

Your employer likely has benefits to encourage you to save for retirement. Many employers offer to match contributions employees make to their 401(k) plans. A simple step to increase your savings is to make sure you are contributing enough to get the full match. Not contributing enough to get the full match is leaving free money behind!

Some employers also offer programs to help employees receive matching funds without hitting the contribution threshold. For example, starting in 2024, a provision in the SECURE 2.0 Act will allow for employers to match contributions to retirement savings for the amount employees pay back in student loans.

2. Increase savings by 1%.

The best way to have more in savings is to, well, save more. A good strategy is to increase your contributions to retirement savings accounts by 1 percentage point every year. Over time, this increase to your savings will add up, but it won’t feel like a major bite out of your budget.

3. Convert savings into a Roth IRA.

If you’re worried about having enough saved for retirement, you’ll want to find ways to mitigate risks like taxes. One way to control taxes is to convert savings into a Roth IRA.

A large portion of retirement savings is done in tax-deferred accounts like a 401(k) or IRA. But taxes are inevitable. Taxes will be due when you start withdrawing from those accounts to fund your retirement. Converting those funds into a Roth account and paying taxes now can help lower your taxes and increase your retirement nest egg.

Please remember that converting an employer plan account to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences, including (but not limited to) a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax adviser before making any decisions regarding your IRA.

This conversion can be done in various ways. Some choose to convert to an entire IRA all at once or spread it out over years. It may also make sense to perform conversions over multiple tax years to avoid entering a higher tax bracket. Also, if your employer offers a Roth 401(k) or other Roth options, take advantage of that for possible tax-free withdrawals later on. SECURE 2.0 now allows employers to match Roth contributions in Roth plans as well.

4. Consider where you will retire.

Your take-home retirement income will vary based on where you live. If you worry about stretching your savings, living in a low-tax state could help. Eight states in the United States have no income taxes — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. These states don’t tax wages, salaries, dividends, interest or any sort of income, including Social Security benefits. (New Hampshire also doesn’t tax wages and salaries and will stop taxing interest and dividends in 2027.)

5. Make catch-up contributions.

If you are 50 or older, the IRS allows you to contribute additional money to 401(k) and IRAs above the standard limit. This can help increase your savings in tax-advantaged accounts.

Total 401(k) contributions are capped at $66,000 in 2023 (this includes contributions made by an employee and the employer). Another $7,500 in contributions are allowed for people over 50. That brings total 401(k) contributions with catch-ups to $73,500 in 2023. For IRAs, people over 50 can make $1,000 in IRA catch-up contributions every year for a total contribution of $7,500 in 2023. Starting in 2024, there will be an increase in the limit on catch-up contributions for people age 60 to 63 that will be the greater of $5,000 or 150% of the regular catch-up amount in 2025.

Many people are often in their highest-earning years toward the end of their careers and may have more money to set aside for retirement. Making catch-up contributions can help make up for lower savings rates in your younger years.

Seek professional guidance for help with making a plan

A financial professional will be able to help establish a plan for your retirement. With their guidance, you will be able to create a retirement strategy tailored to you and your financial situation. This plan will include ways to mitigate risks to retirement like inflation, longevity and market volatility. It is best to write down this plan. That way, you have something to reference when feeling anxious about your preparation or factors outside of your control.