Making the Most of Retirement Savings Plans
- Contribute as much as you possibly can for as long as you can, especially to employer-sponsored retirement savings plans.
- If available, aim to contribute up to the amount your employer will match in an employer retirement plan (e.g., 6 percent of pay).
- When you are still working, resist the urge to tap into retirement savings.
- Tapping into savings prior to age 59½ will incur a penalty, plus ordinary income tax, and take funds away from your future self.
- Waiting until you must take the required minimum distributions (RMD) at age 70½ lets your money continue to grow.
- Review your retirement plans regularly to ensure that they are providing desired growth.
Before the 1980s, many employers held defined benefit (DB) retirement savings on behalf of their workers, and managed those plans until the workers retired. After retirement, workers were paid an annuity (pension) from the account based on their years of service and salary. But, such defined benefit plans are not common today.
Shifting to defined contribution plans (like 401(k), 403(b), stock ownership or profit-sharing plans) and setting aside money in individual retirement accounts (IRAs) has become more prevalent for workers. But this practice transfers the responsibility of managing retirement planning to you.
As the manager of your retirement fund(s), you need to understand the retirement account options you have available. Including special rules about taking distributions, and how to make good management decisions for the long term.
Uncomfortable as it may be, you need to get into the habit of arming yourself with good questions to ask a human resources representative so you can make decisions that are in your best interest.
- AARP offers retirement fund calculators and articles for planning.
- Lifetime Income Calculator from the U.S. Department of Labor lets you estimate your income stream from defined contribution plans.
- My Retirement Paycheck is SAM’s sister site dedicated to retirement issues. Check out the information in the retirement savings plans section if you need additional help.
- Pension Benefit Guarantee Corporation is a federal agency providing protection to certain pensioned retirees when their plans end.
- U.S. Department of Labor contains links to information about all retirement plans.
- What You Should Know About Your Retirement Plan from the U.S. Department of Labor covers the gamut of information about different retirement savings plans, making claims, taking benefits with you, and where to go if you have problems.
What Retirement Plans are Currently Working for You?
When you retire, you are going to need an income stream that replaces the one you have from working. You will also want to fund the lifestyle that you’ve outlined for your retirement. So, what does your retirement plan look like currently?
Earlier, you were asked to size up your retirement plan progress and rate your confidence at being able to live the retired life you visualize. Now let’s get down to some hard facts. Write down your answers to the following:
- What kinds of retirement plan(s) do you have? Who contributes to the plan(s) — your employer, you, both of you?
- How much do you have saved in each plan? Are the savings enough to provide what you will need in retirement?
- Are there any fees, penalties or special rules associated with the plan(s)?