How to Build, Secure & Tap Your Wealth

8 Steps to a How to build, secure & Better tap your wealth. Retirement Step One FIND MORE TO INVEST hile there is no hard-and-fast rule, workers should strive to save at W least 15% of their gross salary (including employer contributions to retirement savings plans), beginning early in their career. (People who get a late start should try to save even more.) Saving more for retirement usually means spending less now. And the first step toward spending less is identifying where your money is going day by day. Tracking every item you buy is one of the best ways to spot leaks in your budget that spring from impulse spending. On these pages, you’ll find ways to come up with extra cash for your retirement. Even a little can add up: Saving $50 a month over 25 years—and investing it so it earns 8% a year—will add almost $50,000 to your nest egg. FLEX YOUR SAVINGS MUSCLES If your employer offers a flexible spending account for medical and child-care expenses, take full advantage of it. A flex plan lets you put pretax money into an account and then pull it out tax-free to pay child-care and out-of-pocket medical bills. (Caveat: You can’t spend FSA funds on non-prescription medica- tions, and your FSA is capped by federal law at $2,700.) FSA contributions avoid federal income and Social Security taxes and, in almost every state, state income taxes, too. If you would other wise lose 30% of your annual salary to those levies, you save $300 for every $1,000 you run through the flex plan. Many workers shy away from flex plans because of the notorious use-it-or- lose-it rule—that is, funds have to be spent by year-end. But your employer may allow a grace period that gives you until March 15 to spend your FSA money, or you may be able to roll over $500 to the following year. PAY LESS FOR TV With an antenna for local channels, a media-streaming device such as Roku, AppleTV or Google Chromecast, and broadband Internet access, you can catch your favorite shows free or for a fraction of what your cable company charges. You may already be paying for Netflix or other services that can substitute for 2 3 8 STEPS TO A BETTER RETIREMENT © 2019 The Kiplinger Washington Editors Inc. KIPLINGER’S PERSONAL FINANCE MAGAZINE cable. Or, if you’re not ready to cut the cord, a cable/wireless Internet/phone bundle from your cable provider could save you money. ADJUST YOUR WITHHOLDING It’s always been a good idea to review the amount of taxes withheld from your paycheck, but now it’s more important than ever. The Tax Cuts and Jobs Act signed into law in late 2017 lowered tax rates, increased the standard deduction, eliminated personal exemptions and capped or eliminated some popular tax breaks. Adjusting your withholding could put more money in your paycheck or help you avoid IRS penalties if you’re not having enough withheld. The IRS says a withholding checkup is particularly important for two-income families, families who are eligible for the Child Tax Credit, taxpayers who usually itemize on their tax returns, and taxpayers who have received large refunds or paid large tax bills in the past. Use the IRS’s updated withholding calculator at www.irs.gov/payments/tax-withholding to figure out whether you should submit a new Form W-4, which tells your employer how much to withhold from your paycheck. You’ll need recent pay stubs and your most recent tax return to complete the program. TRIM THE COST OF CAR INSURANCE The company with the lowest price the last time you shopped may no longer have the best deal. Reshop your auto insurance by using a comparison website, such as Insurance.com or insuranceQuotes (www.insurancequotes .com). Or work with an agent. To find one near you, go to www.trustedchoice .com; also contact agents who sell for one company, such as Allstate or State Farm. Even if you don’t change insurers, boosting your deductible from $250 to $1,000 can reduce your collision and comprehensive premiums by 15% to 20%. SAVE ON LIFE INSURANCE Competition continues to keep premiums for term life insurance low. You may be able to find a lower rate (even though you’re older), or you may be able to lock in the same rate for a longer period. One place to get price quotes is AccuQuote (www.accuquote.com), whose agents can steer you to compa- nies that are in sync with your health conditions and family history. 2 3 8 STEPS TO A BETTER RETIREMENT KIPLINGER’S PERSONAL FINANCE MAGAZINE PAY OFF YOUR CREDIT CARDS If you make the minimum payment on a $1,000 balance at 18%, it could cost you nearly $2,400 and take more than 12 years to pay off. Consider a balance transfer to a card with a 0% or low introductory rate, if you’re confident that you can pay off your balance during the introductory period (check for deals at CreditCards.com or WalletHub.com). And it’s worth a call to your credit card company to find out whether it will lower your existing rate. If you carry balances on multiple cards, focus on paying off the highest-rate cards first while continuing to make the minimum payments on your other accounts. And put your payments on autopilot. Most card issuers let you set up automatic payments from a checking account and allow you to decide how much you pay. SAVE ON VACATIONS Travelers with flexible vacation plans should look for “flash sales” to capture vastly reduced fares. These deals—usually available only for a few hours or days—require quick reflexes. To get a head start, follow airfare-alert sites on Twitter or Facebook and sign up for their e-mail notifications. Google Flights sends out e-mail alerts for routes you want to track, while Airfarewatchdog, Scott’s Cheap Flights and The Flight Deal broadcast alerts over social media and by e-mail. If you swear allegiance to one airline, it makes sense to register for fare-sale notifications through its site. For hotels, try sites such as Priceline and Hotwire, where you book knowing the neighborhood and the number of stars, but not the name; look for bargains of up to 60% off. Step Two SAVE EARLY AND OFTEN he general rule for saving for retirement is simple: Save as much as you T can, starting as early as you can, and let your investments compound inside a tax-sheltered 401(k) or IRA. What hoped-for return should you build into your retirement planning—and enter into online calculators, such as those found at Kiplinger.com—to estimate how much retirement income you’ll need 4 5 8 STEPS TO A BETTER RETIREMENT KIPLINGER’S PERSONAL FINANCE MAGAZINE and how much you must save each year to attain that goal? For a realistic projection, you have to take a long view. We believe that your long-term savings should be placed in stocks and that you can expect the stock market to deliver an annualized return of about 7% over time. That’s less than the average annual return of stocks over the past century. Past performance does not guarantee future results, but a 7% benchmark gives you a reasonable expectation of how much you need to save. And making an investment plan and sticking to it will give you the confidence to weather stormy markets. Step Three GO FOR GROWTH WITH A ROTH f your company doesn’t offer a 401(k) retirement plan—or a 403(b) Ior 457 plan—or doesn’t match your contribution, take matters into your own hands and open a Roth IRA. There are two kinds of IRAs: the original, traditional account and the Roth, which debuted in 1998. The big difference is that a Roth is all yours in retirement, while Uncle Sam will claim his share of a traditional IRA. That’s the main reason we believe that, for most investors, the Roth is the best way to go. For 2019, you can put up to $6,000 into an IRA—$7,000 if you’re 50 or older. If your spouse doesn’t have a job, you can stash $6,000 (or $7,000) of your earnings in an IRA for him or her as well. While there are no income limits for making contributions to a traditional IRA, to contribute to a Roth IRA in 2019, your income may not exceed $137,000 if you’re single or $203,000 if you’re married. With a traditional IRA, you can deduct your contributions if you’re not covered by a retirement plan at work or if your income falls below a certain threshold. For 2019, individuals with incomes up to $64,000 and married couples with incomes up to $103,000 can deduct their full IRA contributions even if they’re covered by another retirement plan. 4 5 8 STEPS TO A BETTER RETIREMENT KIPLINGER’S PERSONAL FINANCE MAGAZINE This deduction can be a sweet deal. If, say, you’re in the 24% tax bracket, putting $6,000 in an IRA will cut your tax bill by $1,440. Put another way, you’ll squeeze $6,000 into your nest egg for an out-of-pocket cost of just $4,560. But in retirement, you’ll pay a stiff price.

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