Retirement Planning

The way that you save and plan for retirement will differ depending on the general life stage you are in.

Young Adults (21-35) - Although young people tend to have less money to invest, due to the nature of compound interest in long term investments like a 401k or Roth IRA, it’s extremely beneficial to start setting money aside during this stage of life. Additionally, many companies will match 401k contributions up to a certain point. It’s important to note that when putting money into a tax-advantaged savings account, there will be penalties associated with pulling from it before a set retirement age. 

Early Midlife (36-50) - This age group tends to have a lot more financial responsibility than young adults (mortgages, student loans, insurance premiums, debt, etc.). Luckily, they also tend to earn a little more income on average. It’s important to ramp up contributions when possible, maximizing contributions to your 401k and/or IRA. It’s also a good idea to think about life and disability insurance in case of emergency, so you don’t have to incur penalties from pulling from a tax deferred savings account. 

Later Midlife (50-65) - Investment accounts later on in life should become more and more conservative. Some people find that they have more disposable income during this stage of life just due to having paid off all or most of their mortgages, student loans, credit card debt, etc. After the age of 50, an additional $1,000 can be contributed into either a traditional or Roth IRA per year, and an additional $6,000 can be contributed into a 401k per year. People who have maximized their tax-deferred savings options can benefit from investing in other forms of supplemental retirement savings, like CDs, real estate investments, and blue-chip stocks. 

We’ve briefly talked about 401ks, traditional IRAs, and Roth IRAs, which are a large part of retirement planning. But a comprehensive retirement planning service will cover much more than this. Some other aspects of retirement planning include:

Home - Most people report that their home is the biggest asset they own. So how does that fit into a retirement plan? Before the housing crash, a home was considered an asset, however nowadays more and more homeowners are beginning retirement with mortgage debt. Another aspect of retirement is whether the home you own is too big to manage during retirement, and whether/when it is a good idea to sell it.

Estate Planning - What happens with your assets after death is determined by an estate plan. Every retirement plan should include a will, but it’s also a good idea to set up a trust to ensure your assets are shielded from estate taxes. Although the first $11.4 million of an estate is exempt from an estate tax, many families are finding ways to leave finances to their children that don’t involve a lump sum.

Tax Efficiency - Taxes can become a big problem after a person reaches retirement age. That’s because 401ks and traditional IRAs are taxed as ordinary income when distributed, meaning people can pay taxes as high as 37%. It is for this reason that many estate planning experts push their clients to invest in a Roth IRA (or Roth 401k), because taxes are paid for these accounts when the money is invested rather than distributed. People who suspect they will make more money later in life can benefit from Roth investments, and should ask their financial advisor about a Roth conversion. 

Insurance - Age comes with increased medical expenses for all of us. In order to protect your assets, it’s important to ensure that medical bills won’t eventually start eating into them. Because Medicare doesn’t provide adequate coverage for many situations, Medicare Advantage or a Medigap policy can help supplement access to good healthcare. Life insurance and long-term care insurance can also help protect your assets.

Don’t wait to secure your future, call Burr Capital Advisors today to benefit from our West Hartford retirement planning services and create the right retirement strategy for your needs. One of our friendly and knowledgeable representatives will be happy to answer any questions you may have.