According to our furry friend, Punxsutawney Phil, spring will soon be upon us! I’d like to take a moment to reflect on those resolutions you made just a couple of months ago. Do you even remember them? Maybe this will help jog your memory: according to a survey by YouGov1, a global public opinion and data company, the top three resolutions are: save more money, eat healthier and get more exercise. All great goals. For a financial advisor who focuses on retirement plans, it remains good news to me that “save more money” remains at the #1 spot! Now let’s break this goal down even further.
For the last 10 years, Fidelity has published their “Financial Resolutions Study.”2 According to the study, the top three financial resolutions are to save more, pay down debt, and spend less. Again, great goals. This is also consistent with what we learn from those in retirement. A recent survey of retirees by Transamerica’s Center for Retirement Studies found that almost three in four retirees (73%) agree they wish they would have saved more on a consistent basis, and (64%) wish they had been more knowledgeable about retirement savings and investing.3
When delivering financial education seminars to employees at their workplaces, I often say, “Saving for retirement is funny. A small amount saved over a long period of time can have tremendous results, but the average person does not understand or appreciate the value of tax-deferred compound interest, or worse, they procrastinate for years.”
How much can a 1% increase in your savings mean over time? Assuming a conservative growth rate of both your return on investments and salary increases annually, a 35-year-old who earns $60,000 per year, could save an additional $85,492 by age 67. A 45-year-old who earns $70,000 per year could save and additional $42,925. 1% for these examples equates to $12 per week for the 35-year-old, and $14 per week for the 45-year-old out of their paycheck. What would this equate to if you increased your savings every year by 1%?
Even the IRS is enabling you to save more! Retirement plan contributions have increased for 2019. He qualified retirement plans, i.e., 401(k), 403(b), most 457 plans and government Thrift Saving Plans, to increase to $19,000, up from $18,500 in 2018. For those with a SIMPLE IRA, the limit has increased to $13,000, up from $12,500. For contributions to a traditional IRA or ROTH IRA, the limit has increased to $6,000, up from $5,500. Catch up contributions for those over 50 did not change. They remain at $6,000 for those in qualified plans, and $1,000 for individual IRAs.
Income limits to determine eligibility to contribute to a traditional or ROTH IRA went up as well. As did the limitation on the annual benefit under a defined benefit plan, which increased to $225,000 from $220,000. For defined contribution plans, the limit increased to $56,000 from $55,000. The annual compensation limit increased to $280,000 from $275,000. And the limitation to define a highly compensated employee (HCE) increased to $125,000 from $120,000.
For the complete list of changes please type in “IR-2018-211” in the search field at the IRS.GOV website or ask your financial advisor.
Spring is a time for new beginnings, and you still have time to accomplish your resolution to increase your savings. We can all use the extra dollars when we retire. Take a few minutes today to review your financial readiness. Did you get a 2% raise? How about saving half by increasing your 401(k) or 403(b) by 1%? Are you getting a tax refund? How about opening or adding to a traditional or ROTH IRA? Eat out a little too much? Splurging on something you can’t afford? A little extra today saved regularly over a long period of time can increase your chances for a successful retirement. Take advantage of the increases in contribution limits by the IRS. You will thank yourself later.
If you or someone you know could benefit from financial education seminars, such as our pre-retiree lecture “Can You Afford to Retire” at your workplace, we are happy to present on-site. We value and encourage financial literacy. You don’t want to find yourself as the statistical retiree who 20 years from now who says, “I wish I would have saved more.” Plan now and focus on your goals.