July 1, 2020

Edited 07/09/20

3 Smart Ways to Grow Your Money Now Before Retirement

Quick and easy ways to maximize your retirement accounts and make sure that there aren’t any missed opportunities where you could be saving more.

It’s no great secret that pensions are going extinct. In fact, it’s likely that the majority of people reading this have never and will never have a pension.

Long ago, the retirement benefit once provided by private employers was replaced by the 401(k) as the new standard. And, many government agencies that still offer pensions to their employees are considering legislation that will reduce even those benefits. This means that many people are (or will be) depending primarily on their own savings and investments to fund their retirement.

Therefore, it’s important to make every dollar count. Here are a couple of simple steps to help you increase your savings and reduce any unnecessary fees and taxes in retirement. 

1. Consolidate Your Accounts and Minimize Fees in Retirement

If you are like most Baby Boomers, you probably have a number of different retirement and savings accounts held at various institutions. Also, if you’re married, the number between yourself and your spouse can go up exponentially. 

Step one before retiring should be to consolidate and roll over these accounts.

Why?

By having multiple accounts, you’re incurring a variety of account-level fees, trading fees, management fees, and advisory fees. Understanding the total amount of fees on your investment accounts at one company can be difficult. If you have accounts across several different companies that can compound, it’s difficult to know what you are paying. 

Account-level fees and trading fees have come down in recent years and are generally a very small portion of total account cost. However, management fees and investment advisor fees are a different story. The average management fee of around .5% and the average advisory fee being near 1%. It is not uncommon for the average American be paying upwards of 1% on your investment and retirement accounts. 

A fee of this size can have a large impact over your investing years, significantly reducing the value of your accounts. The good news is that the introduction of Exchange Traded Funds (ETFs) has greatly reduced the management fees associated with investments. Many of these funds have lower expense ratios than some of the popular managed mutual funds. Also, we have seen new alternatives in the advice area which has started to bring down advisory fees to a more reasonable level. It is not uncommon now to see advisory fees in the range of .25% to .5% 

By consolidating accounts, you can dramatically lower this cost by simply rolling your old retirement accounts into one account with lower fees. Plus, it’ll allow you to see how much exactly you’re handing out in fees because those fees can add up quickly.

Additionally, seeing all of your retirement finances consolidated in one place can give you a clearer picture of all your financial details—how much you’ve saved, where you’re invested, and how diversified your portfolio is. It’s simply easier to manage when it is all in one place.

2. Catch Up on Contributions

If you haven’t yet retired and you’re over the age of 50 (or turning 50 soon), now is the time to catch up on your contributions. The IRS allows individuals who are 50 or over by the end of the calendar year to contribute to both their IRAs and 401(k)s at levels that are above the standard contribution limits.

Workplace Retirement Plans

You can add up to another $6,000 annually to any of these accounts:

  • 401(k) – other than a SIMPLE 401(k)
  • 403(b) – you could possibly add even more if you have over 15 years of service
  • SEP
  • 457 Plans

If you have a SIMPLE IRA or SIMPLE 401(k), you can add up to an extra $3,000 per year. 

Individual Retirement Accounts

Roth IRA

If you’re:

  • Single and have a Modified Adjusted Gross Income (MAGI) of less than $124,000
  • Married or a widow(er) and have a MAGI of less than $196,000

You can add up to $7,000 annually to your Roth IRA.

Traditional IRA

If you or your spouse are able to contribute to a workplace retirement plan, the ability to make deductible contributions to a Traditional IRA is affected by the income limits listed below.

If you’re:

  • Single and have a MAGI of less than $65,000
  • Married or a widow(er) and have a MAGI of less than $104,000

Your full contribution is deductible. 

If you’re:

  • Single and have a MAGI of more than $65,000 and less that $75,000
  • Married or a widow(er) and have a MAGI of more than $104,000 and less than $124,000

Your contribution is partially deductible.

If you or your spouse are not able to contribute to a workplace retirement plan, you are able to make a contribution of $7,000 to an IRA without worrying about income limits. An IRA is an individual account so both you and your spouse can contribute $7,000 to each account and receive a tax deduction for those contributions.

If you have any of these accounts, top them off while you can.

3. Consider Your Greatest Financial Asset

That’s right—we’re talking about the house.

For most of us, our home is both a personal residence, as well as our largest financial asset.

However, it appears that more and more Boomers are choosing not to downsize and are staying in the large homes where they raised their families. In 2007, a USA Today/Ipsos survey found that 43% of boomers plan to stay in their larger homes throughout their retirement years. A survey by Chase released in January 2019  showed that number at 52%.

However, this might not be in your financial interest. It may be worth considering downsizing or extracting home equity to help finance your retirement. Not only will it leave you with a comfortable nest egg, but smaller homes mean lower property taxes—another financial benefit.

Interestingly, one of the reasons Boomers cited for not downsizing is because they’re delaying their retirement. If that’s your reason, it might be time to sit down and do the math to see if selling your house now could get to your retirement more quickly.

Regardless of your retirement plans—and whether you’re already retired or looking towards the future—no one wants to be robbed of their hard-earned savings or be blindsided when their retirement funds aren’t enough to cover the cost of living. Consider taking action towards your retirement by making these three smart money moves and have Silvur project your future income.