At the start of the new year, many of us sit back and reexamine our financial lives. 2022 is no different. However, this year, many claim they will spend more time on their finances than in years past, although few have a clear plan for achieving that goal and staying consistent.
One of the best strategies is: Keep things simple. Here are some things to review and consider as you think about how you can save more toward your retirement in 2022.
Take a fresh look at your employer-sponsored retirement plan contributions.
Reviewing your retirement plan contributions every year is one of the best ways to ensure your retirement plans stay on track. In 2022, the maximum contribution to an employer-sponsored 401(k) plan increased by $1,000 to $20,500.
You can build a stronger financial foundation for your retirement years by increasing your contributions to the maximum limit. If you are over age 49, the law now allows you to contribute another $6,500 in "catch up contributions." That’s a total of $7,500 extra you can contribute and grow tax-deferred until you retire.
Should you contribute to a 401(k) or a Roth IRA?
It can be challenging to decide whether to contribute your investment dollars in a 401(k) on a pre-tax basis (meaning that you don't pay taxes on contributions until you begin receiving withdrawals) or in a Roth IRA on an after-tax basis.
The answer depends on your age and income. When you are likely to earn less during your younger years, the tax savings of a 401(k) isn't as critical. A Roth IRA might be a better option at this point. Conversely, the tax-deferred nature of a 401(k) could be a more significant benefit when you are making substantially more income.
Optimize retirement investing by setting up automatic contributions.
One of the biggest financial mistakes people make is missing opportunities to invest and grow their retirement savings. You can avoid this mistake by setting up automatic contributions to your retirement accounts.
Because these contributions are deducted from your pay before you receive them, you won't be tempted to spend the money. You'll quickly forget all about the small amount of money coming out of each paycheck.
Want to know more about saving effectively for retirement? Contact us today, and one of our experienced advisors will review and analyze your financial situation and provide recommendations best suited for your situation.