Americans are very much unprepared for their retirement and even after the financial crisis, there has been only a slight improvement in the savings rate. Most of the financial experts are of the opinion that average investors are not taking the initiative to build a nest egg for their retirement. The most important thing is the rate at which you save money. After all, you have to have money to get returns from it. It is not about just investment, but saving sufficient money for your retirement.
According to the Federal Reserve and the US Census Bureau, nearly 40 percent of working Americans are not saving any money for their retirement. If you are among this category, may be this is the right time to consider a 401(k) retirement plan for your old age. Most of the Americans are not taking full benefit of tax-free saving tools such as 401(k) and IRA accounts. According to the financial experts, the last quarter of the year is the best time to analyse your retirement savings and asset allocations. One should compare his/her standing as compared to the previous year.
Top 5 Items in Your Retirement-Plan Check-list
- Update your beneficiaries: Retirement accounts require you to add beneficiaries against your account. It is important to review your beneficiaries and ensure that a grieving member would not receive an unexpected surprise. You need to update your retirement accounts in case of marriage, birth, death, and even a divorce.
- Catch up on your investment with free money: According to the current regulations, you can invest up to $17,500 annually in your 401(k) account. Moreover, you can make a catch-up contribution of $5,500 if you are above 50 years of age. It might be an excellent decision to invest in a contribution-matching plan offered by your employer. You should try to match maximum every month. After all, it’s free money!
- Revise and rebalance your assets: Like every other thing, your investments require rebalancing every now and then. If the market were down, you would want to move your assets from equity market to government bonds and securities. Most of the people use automatic rebalancing tools for their savings. In any case, it is best to monitor your investments in every three months.
- Choose IRA roll-over against cash outs: It might be tempting to use that money, but it will keep your future savings at risk. If you changed a job, it is best to roll over your IRA into your personal IRA or the one offered by your new employer. If you are younger than 59 ½ years, your cash out would be liable to taxes and a withdrawing penalty on your savings. You can even opt for a new personal IRA because of the flexibility it offers for your investments.
- Choose Roth Conversion: According to Investopedia.com, “A reportable movement of assets from a Traditional, SEP or SIMPLE IRA to a Roth IRA, which can be subject to taxes. A Roth IRA conversion can be advantageous for individuals with large traditional IRA accounts who expect their future tax bills to stay at the same level or grow at the time they plan to start withdrawing from their tax-advantaged account, as a Roth IRA allows for tax-free withdrawals of qualified distributions.” You should consider shifting at least some part of your IRA into a Roth conversion for added benefits. It is idea for people with small business or self-employed individuals.