By Edward “Ed” V. O’Neal, Vice President and Manager, Retirement PlansPrint This Post
Anyone who’s ever managed their own finances knows that saving can be a challenge and requires both commitment and a strategy. There often seems to be an endless stream of expenses demanding some piece of monthly income, but one of the most basic tenets of a sound saving and investment strategy is to remember to ‘pay yourself first.’
This is particularly important in terms of saving for retirement, as it becomes increasingly apparent that relying solely on social security for a secure retirement could be tenuous. The trick is to make it a point to put your future first. Look for ways to make subtle changes such as creating (or sticking to) a budget, or searching for ways to reduce expenses (i.e. such as eating out less frequently, etc.) and using the extra money to increase your savings rate.
Individuals fortunate enough to participate in employer-sponsored retirement plans (i.e. 401k, 403b, SIMPLE, etc.) have access to a great savings tool, because money comes out of your paycheck through pretax salary deferrals before you have a chance to miss it. As an added incentive, many retirement plans offer to match a percentage of your contributions, increasing your overall savings rate.
Due to cost of living adjustments, many contribution limits for retirement accounts received a boost in 2019. Employee deferral limits for 401k, 403(b) and some 457 plans increased from $18,500 in 2018 to $19,000 in 2019. Employee deferrals for SIMPLE plans increased from $12,500 in 2018 to $13,000 in 2019. Additionally, IRAs received the first increase since 2013 with contribution limits moving from $5,500 in 2018 to $6,000 in 2019.
Taking full advantage of an employer sponsored retirement plan that allows you to defer income, or regularly contributing to an IRA, can put your savings on auto-pilot and help execute on a ‘pay yourself first‘ strategy. Please consult with your tax advisor before implementing any retirement savings strategy to fully understand the ramifications to your personal tax situation.