How should I save for retirement?

The best way to save for retirement is by establishing a process where the money that goes into your checking account is limited to the amount you need to pay your bills. Excess money in checking accounts has a way of always getting spent, even for our most disciplined clients. To help with this process, many of our clients have their pay checks deposited to their investment accounts rather than their checking accounts and then have the amount needed to pay their bills transferred to their checking accounts, as opposed to the other way around. If this process makes sense for you, we will establish a system whereby we would routinely ask you how much of the amount remaining in your investment account is investable and provide you with our recommended investment proposal to get this money invested promptly.

Taking full advantage of the benefits of your employer-provided retirement plans is another excellent way to save for retirement. We will assist you in:

  • determining any specific risk and/or excess return attributes of each of the retirement plan(s) offered by your employer so you can prioritize them
  • understanding the cash flow implications of making contributions to the retirement plan(s)
  • contributing your desired amount to the retirement plan(s) in priority order each year
  • familiarizing yourself with the types of assets available in the retirement plan(s) and their income tax advantages and disadvantages
  • assessing the pros and cons of the specific investment options available in the retirement plan(s)
  • selecting the investment option(s) that are most appropriate to achieve your portfolio objectives in a tax-efficient manner and monitoring their performance
  • making sure that all your retirement plan accounts are well integrated and are part of your overall investment strategy

Your employer may provide you with the option of contributing to a Roth account. Roth accounts can be fantastic tools for achieving retirement goals. Although you forgo receiving an initial income tax deduction, like with traditional retirement accounts, you still receive the same tax deferral benefits with the addition of never having to pay income taxes on future withdrawals. While this makes a great deal of sense for many of our clients, there are always additional circumstances to consider. Part of our services include analyzing your current versus future expected tax rates and the number of years until you plan to retire to illustrate the potential benefits of a Roth election. In addition, we will assist you in considering the pros and cons of making non-deductible IRA contributions each year as well as converting current IRA assets into a Roth IRA.

Your employer may also provide you with the opportunity to contribute to a Heath Savings Account (HSA) if you are covered by a high-deductible health insurance plan.  We consider HSAs as the most tax effective retirement plans available, because you receive a current income tax deduction for the contributions. You may never have to pay taxes on future withdrawals as long as your health costs are at least as high as the amount you withdraw from your HSA over time. To maximize the benefits of your HSA, we recommend keeping the funds invested for as long as possible during your lifetime.  Therefore, we typically recommend selecting the plan’s riskiest investment option.