As 2019 comes to a close, many people are already looking ahead to 2020. The new year signals a time for reflection and planning. For many, the goal is to manage their money better in the coming year, and that includes planning for retirement. Certain moves can be beneficial, ensuring you are financially secure in the future. If you want to set yourself up for retirement success in 2020, here are some tips that can help.
Learn the New Contribution Limits
You can’t maximize your retirement savings if you don’t know how much you are allowed to sock away in various accounts. The Treasury Department announced new figures, adjusted for inflation, for 401(k) plans.
In 2020, you can put up to $19,500 in a 401(k), up from $19,000 in 2019. For people age 50 and older, you can also make larger catch-up contributions. Instead of $6,000, the 2019 catch-up limit, you can put up to $6,500 extra away for retirement.
The contribution limits for IRAs remained unchanged for 2020. Just like it was in 2019, you can save up to $6,000 in an IRA. If you’re 50 or older, then you can put an additional $1,000 in your IRA as a catch-up contribution.
Adjust Your Investment Allocations
How you invest your retirement savings shouldn’t stay the same over the years. If you are younger, you can typically afford to take on more risk. Even if there is a downturn, the markets generally trend upward over time. As a result, you might be able to ride out falling stock prices with greater ease.
Many younger retirement savers put more of their savings in stocks. However, if you are getting close to retirement, shifting your investments to something more stable, like bonds, might be wise. That way, you can preserve your account’s value if the market takes a tumble, ensuring you can still retire on time.
You may also want to examine your individual investments. If you invest in individual stocks, it’s smart to evaluate their performance and potential. If any investments are weighing your portfolio down, it could be wise to consider making changes. That way, you can earn as much as possible between now and retirement.
Plan for Your Future Healthcare Needs
Healthcare costs are typically a major part of a retiree’s budget. If you want to make sure you can shoulder these expenses, putting money aside in a health savings account (HSA) could help make retirement more affordable. Both contributions and withdrawals from an HSA are tax-free, which is a benefit that’s hard to ignore.
If you are enrolled in a high-deductible health insurance plan – which, in 2020, means having a family deductible of $2,800 or an individual deductible of $1,400 – you can put money in an HSA to cover medical expenses. If you don’t use the funds immediately, you can invest them, allowing them to grow.
For 2020, individuals can save up to $3,550 in an HSA. If you’re making contributions for a household, that number goes up to $7,100.
Review Your Social Security Benefits
At this time, Social Security is still a source of retirement income. While you shouldn’t plan to rely on it alone, understanding how much those benefits are worth to you can help you plan more effectively.
If you haven’t reviewed your Social Security account recently, now’s the time to take a look. Head to the mySocialSecurity portal to get access to a personalized estimate. This gives you a better picture of what you might receive.
Plus, you can see how your benefits change based on when you start receiving Social Security. You can look at the impact of retiring at any age, beginning at 62 and through age 70. While this information is based on a few assumptions about your future earnings potential, it’s still a great tool that can give you helpful insights.
Additionally, by reviewing your Social Security account, you can see if you might want to boost your benefits. If you bring in more income annually, your lifetime earnings rise. Since Social Security is based on lifetime earnings, any increase can have a positive impact. You can also review your account for errors. That way, if your income information isn’t accurate, you can get it fixed.
Reduce Your Debts
Eliminating debt can actually be part of retirement planning. If you can reduce your expenses, you won’t need as much money to support your ideal lifestyle. That may help your retirement savings go further, limit your need for part-time income after you stock working full-time, or make your post-professional years more lavish.
Ideally, you want to begin by focusing on high-interest debts, such as some credit cards. As you get those paid off, you can shift your attention to lower-interest debts. If you can ultimately become debt-free, you’re giving yourself a lot of financial flexibility. However, even reducing your debt load makes a difference, so don’t be afraid to start small if that’s all you can do initially.
Go Beyond the Retirement Account
If you have very little debt and are already maxing out your retirement accounts, that doesn’t mean you can’t do more to secure your financial future. If you invest in a regular brokerage account, you could potentially use that money to fund your retirement.
There aren’t the same contribution limits on traditional investment accounts as there are on retirement accounts. This means you can sock away practically any amount on top of what you’re saving for your days as a retiree. It’s a great way to boost your savings when you’ve already reached the 401(k) and IRA maximums each year.
Do you have any tips that can help people plan for their retirement? Share your thoughts in the comments below.