The latest stock market frenzy has led to an influx of bright-eyed new traders downloading apps and scouring Reddit message boards for stock tips. There is nothing wrong with a little healthy optimism, but it should also come with a healthy dose of realism in the form of a well balanced retirement portfolio.
I had a chance to interview Nolan Baker, www.AmericasRetirementHeadquarters.com, to learn more.
What were some of the factors that affected retirement plans in the past year?
The Secure Act was passed in 2020 and it made changes for retirement savers. First, the age limit for a person to be eligible to make contributions has been removed. Thus, younger workers under the age of 18 and older workers over 70 with eligible earnings can make contributions. An IRA account owner can now take up to $5,000 from a retirement account and avoid a 10% early withdrawal penalty if he or she is under 59 ½ for the birth of a child or an adoption. The withdrawal will still be taxable income, but the penalty is avoided. Withdrawal changes were also made to beneficiaries who inherited a retirement account. Instead of being able to stretch out the taxes over a beneficiary’s life expectancy, now the account must be fully withdrawn within 10 years. In 2024, there will also be expanded opportunities for part time employees to be eligible for 401K contributions. A new Secure Act 2 bill has also recently been introduced in the House, so expect more changes in the future.
For people who still have quite a few years until retirement, are there steps they need to take now?
If a person has quite a few years until retirement, it is extremely important to pay yourself first. This can be accomplished by taking advantage of a company retirement plan or setting up an individual retirement account. The more that is saved and the earlier, the easier it is to reach retirement goals. Become educated about making smart financial decisions by setting up a financial plan, reading a book on financial readiness, listen to a podcast, or start working with a financial professional. Remember the longer a person has till retirement time, the less they need to be worried about the daily ups and downs in the stock market, the key to success is to keep saving during all market cycles.
How can people closer to retirement make the necessary adjustments?
The closer a person gets to retirement time, the more they need to keep a closer eye on their finances. We generally recommend people close to or in retirement time began to set up buckets of money for different time frames. For example, it could be a great idea to have a bucket of retirement money designed for the first five years of retirement. This money might be conservative and designed to avoid stock market loss. Then a bucket of money designed for a pay raise in the future to help fight off inflation. Last, a long-term bucket of money could be the money that has more risk since it has more time to stay invested for the long-term. Be sure to develop a written retirement income plan. This is different than a financial plan in that this plan focuses on ideas and strategies designed to maximize lifetime income options through investment income, social security optimization, and pension choices.
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