Even if you’ve been diligently socking money away for years, retirement was likely always more of an abstract idea than an eventual reality. Now, though, things are different. Retirement is just around the corner, and if you’re like most people, that’s a little bit scary.
The last decade of your employment is a time when you have important decisions to make and your actions can have a major effect on your retirement. You want to do whatever you can to set yourself up for an enjoyable and stress-free retirement. Here are several ways that Baby Boomer pre-retirees like you can do just that by maximizing your employer’s benefits package.
Take Advantage Of Catch-Up Contributions
Saving into a 401(k) or 403(b) retirement plan probably isn’t anything new for you. However, there is something new about it when you reach age 50. In 2019, while most people are only allowed to save $19,000 into their employer’s retirement plan, those over age 50 are allowed to make “catch-up contributions” of an additional $6,000.
If you were to save an additional $6,000 from age 50 to age 65 earning a 6% return, you would end up with an extra $148,000. If that money sits in your account earning the same until you’re 80, those catch-up contributions would then be worth over $350,000!
Maximize Your Health Savings Account
Another perk your employer might offer, depending on your healthcare plan, is a Health Savings Account (HSA). With an HSA, you get to put money in pre-tax and take qualified withdrawals for healthcare expenses tax-free. That’s a double tax benefit not available with any other kind of account.
Right now it is estimated that the average couple will spend $285,000 on healthcare expenses in retirement. (1) With numbers like those, it is wise to save as much as you can tax-free while you’re still working to cover your healthcare costs in retirement. If you’re over age 55, you can even make an additional catch-up contribution of $1,000 per year.
Schedule Your Healthcare Needs
As we just said, healthcare is a major expense in retirement. It’s also a real concern for those that choose to retire early before they are eligible for Medicare at age 65. If your employer provides you with good, low-cost health insurance, you should take advantage of it while you still have it.
If you have any tests or procedures that you need to get done, it could save you a lot of money to have them completed while still on your employer’s health plan. You will need to compare the costs and benefits of your current and future insurance plans to decide what makes the most sense in your situation.
Use Your Company Legal Plan To Order Your Affairs
Having a will or living trust and all of your affairs in order is one of the greatest gifts you can give your family. However, only 58% of Baby Boomers have their estate planning documents in place, according to a recent survey. (2) While it can be expensive to pay an attorney to draft estate planning documents, it’s also very important.
Luckily, many employers are now offering legal plans as a part of their benefits package. If yours does, you should take advantage of it and have your documents drafted or updated for a fraction of the cost. Your family will be grateful.
Defer Your Compensation
Some employers offer deferred compensation plans for some employees. If you have the opportunity and you make more than enough to live on, it might be a good idea to defer some of your compensation. That way, you can save on taxes by receiving the pay in retirement when you are in a lower tax bracket. If you’re already maxing out your retirement accounts, deferring compensation is a good way to lower your current income and have more for your retirement years.
How We Can Help
There’s a lot that goes into preparing for retirement, and maximizing your benefits package is only a small part of it. If you’re nearing retirement and want the assurance that you’re setting yourself up for future success, we can help. It’s important to work with an experienced financial professional who can guide you through the transition and explain all of the decisions you need to make. If you would like an expert guide through this challenging season of your life, contact us at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com.
About Haydel, Biel & Associates
Haydel, Biel & Associates is an independent financial advisory firm serving individuals and families near Pasadena, California. The firm was founded in 2004 by Chris Haydel and Ricky Biel with a desire to provide unbiased, client-centered, community-based financial advice. Together, they have built a practice that has grown into a family of caring, smart professionals committed to blending proven investment methodologies with creative financial technologies that make it easier than ever to accomplish your goals. They strive to keep things simple and fun to give their clients peace of mind and alleviate financial stress. HBA Wealth takes care of their clients’ needs first and foremost and goes the extra mile to make their clients’ finances grow. To meet and see how the HBA Wealth team may be able to help, contact them today at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com.
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(1) https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs
(2) https://www.aarp.org/money/investing/info-2017/half-of-adults-do-not-have-wills.html