Planning for Retirement In 2022? Do these 5 things now
It's never easy to plan for retirement. Even in the best of times, accumulating a large enough nest egg for retirement is difficult.
What about right now, in these trying times?
That's why it's critical to be completely prepared before retiring, and even to plan for the unexpected.
Understanding the new requirements for retirement planning in 2022 will help you increase your chances of getting more out of your funds in 2022.
Here are five things you should do right now to ensure that your golden years are truly golden:
1. Increase your 401(k) contributions by a small amount
Let's imagine you're 45 years old. As of mid-2021, your IRA has $63,000 in it. That was the average for all Fidelity 45-year-olds with IRAs. Assume your IRA grows at a rate of 7% each year. Let's say you make $60,000 each year. You get a 1% pay raises every year and save aside 6% of your salary each year. You'll get a 3% business match.
So, what happens next? Your retirement fund would be $849,551 if you retire at the age of 72. Take a look at what occurs if you increase your retirement contributions by 1% per year until you and your employer are contributing a combined 15% per year. Then maintain that rate till you retire. According to the Bankrate.com 401(k) calculator, your nest fund will be worth $1.019 million by the age of 72. Over the course of five years, a 1% rise per year results in a gain of $169,400, or 20%. It's not a horrible deal. And, in this case, your contribution increases are about one-tenth the magnitude of your yearly pay raises.
2. Success in Retirement Savings
First and foremost, you must maintain track of which retirement accounts are being scrutinized by federal tax authorities. Consider President Joe Biden's proposed Build Back Better (BBB) spending package. Whether you like or oppose its provisions, the BBB wants to help pay for itself by imposing a number of taxes, both direct and indirect, on retirement savings if it passes in its current form in the Senate.
The implementation of a single tax would begin next year. The use of so-called backdoor Roth IRA conversions would be prohibited. Those conversions currently allow you to circumvent the $140,000 income threshold for Roth IRA contributions. You now deposit the funds into a standard IRA that is not tax-deductible. There are no income restrictions on these. The money would then be transferred to a Roth IRA.
Under the new guidelines, no. You'd be barred from keeping the money for the rest of your life. It would no longer be possible for children or grandkids to inherit it and keep it for up to ten years.
3. Understanding New Taxes When It Comes to Retirement Planning
If the Senate passes them, two new taxes on retirement savings will go into effect in 2029. This offers you time to increase your income in the years leading up to that. This might keep you below the annual income levels — $400,000 for single taxpayers and $450,000 for married joint filers in pre-deduction modified adjusted gross income — that trigger the new regulations.
Another approach to deal with the new retirement-savings taxes? "Investing in a range of accounts that have varied tax treatment," T. explained. Roger Young, a senior retirement insights manager at Rowe Price, is a qualified financial planner. One tax would operate like this: If your total balances in all of your IRAs and 401(k)s total $10 million or more, you wouldn't be able to contribute anymore. If the money isn't put into a retirement account, it will almost certainly be taxed. The second type of tax is more straightforward. You'd have to withdraw half of your money in the year after your balance reaches that level. Unless it's in a Roth account, it'll be taxable. If your combined retirement account balances exceeded $20 million, you'd have to pay out the entire balance.
4. Plan For Inflation When Retiring
Inflationary pressures are another issue to keep an eye on. What's your best line of defense? Proper retirement planning entails including funds that outperform inflation in your retirement assets. Diversified stock funds, such as the S&P 500 index fund, fall into this category. It also includes funds that invest in TIPS bonds, short-term bonds, commodities, REITs, and cyclical stocks, among other things.
5. Contribution Limits Increased
You should also keep note of which retirement accounts have updated contribution restrictions. After all, you want to save the most money feasible whenever possible. This limits the amount of time you can work in tax-advantaged retirement plans. It also puts you in a position to receive your employer's maximum contribution.
