Unlike the great American gymnast Simone Biles, you don't need to do flying somersaults to be good at retirement savings. There are already tools available for what you need to do.
As the U.S. economy continues to improve, retirement savers are pumping more money into their long-term savings. Some 21 percent of Americans surveyed, according to a recent bankrate.com report, say they are saving more for retirement -- the highest level over the past five years.
“More working Americans are saving more for retirement and fewer aren’t saving at all. Both readings are indicative of an improving economy, where people are earning more and saving more,” said Bankrate.com Chief Financial Analyst Greg McBride, CFA.
Where is retirement savings going? There are a number of vehicles, although the dominant retirement account is still the 401(k), offered by employers. But there are other options as well. Here are some considerations:
-- The Auto-pilot Plan. You can do this one of two ways. You can sign up for automatic withdrawals into funds you choose within your 401(k), or sign up for a "target date funds," which automatically invest your money in pre-set mutual fund combinations.
Although there are pluses and minuses to both approaches -- you still need to know how much risk you're taking in each strategy -- the key principle is to save more each year. Each time you get a raise, increase your contribution.
-- IRAs. Individual Retirement Accounts are a great backstop to any employer-offered retirement plan. You can roll over 401(k) lump sums into them or just set them up on your own.
IRAs came in many flavors, but here are the two main choices: Conventional and Roth. The former allows you to sock away up to $5,500 a year -- $6,500 annually if over 50. The latter, which allows for tax-free withdrawals, is dependent on household income. See IRS guidelines for contribution limits.
-- Health Savings Accounts. This is a double bonus kind of account since contributions and withdrawals are tax-free, although to avoid federal taxes you need to use the proceeds for health-related expenses.
Why are HSAs a good retirement vehicle? Because if you don't need the money for healthcare expenses, you can use the money for retirement. You can save up to $4,250 a year for individuals and $7,750 for families.
You’ve been saving diligently for retirement. Now make that money last the rest of your life.
The one catch for HSAs is that your employer needs to offer them, typically in conjunction with a high-deductible health insurance policy. But you can also set them up on your own if self employed.
Even better news is that you can employ all three strategies simultaneously if you qualify. If you're over 50, the IRS gives you another break: You can add $6,000 to the $18,000 annual 401(k)-type plan contribution limits, which also includes 457, 403(b) and government Thrift Savings Plans.
So work on a strategy to fund at least one of these vehicles. If you're saving at least 15% of your annual income, you'll be rewarded down the road.
