Planning For Retirement: Understanding Your Options

Knowing what your options are can alleviate the stress and help you plan for a financially sound retirement. We’ll take a look at a few popular ways to save—and some other important ways you can reach your financial goals:

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• Take full advantage of your company’s 401(k). Pension plans have, for the most part, gone the way of the dinosaur—and have since been replaced almost entirely by the 401(k). If you’re not sure what a 401(k) is—you’re not alone. Nearly 63 percent of Americans don’t understand exactly how it works. A 401(k) is different from a pension in that it shifts the responsibility of funding retirement from the business to the worker—while the company sponsors the account itself. You decide what percentage you want taken out of your paycheck—and the money goes into your 401(k).

  Sweetening the pot—many companies will actually match the amount you put in, up to a specified percentage—and 401(k) contributions are taken out of your paycheck pre-tax—reducing your taxable income while also helping you plan for the future! Sure, you’ll pay taxes on in after you start withdrawing the money during your retirement, but the idea is your income will be much lower at that time, helping to keep the amount of taxes you pay in check.

  The IRS limits how much you can contribute each year to ensure highly paid employees don’t benefit more from tax advantages than the average worker. In 2022, the maximum anyone can pay into their 401(k) is $20,500. Those 55 or older can qualify for “catch up” contributions that cap at $6,500 a year.


• Self-employed? Open a solo 401(k). One of the drawbacks to being self-employed is that you don’t have a large company helping to pay into your 401(k) or sponsor it. This is why a solo 401(k) plan may be an option. Small business owners who don’t have any full-time employees can open a solo 401(k) retirement plan to get many of the same benefits that come with a traditional 401(k). One bonus of a solo plan is that more annual contributions are allowed—the IRS caps solo 401(k) contributions at $61,000 as of 2022, and catch-up contributions are limited to $6,500 for the year for individuals who are at least 55 years old.
• Consider an IRA. An IRA is an individual retirement account that you can pay into in addition to your 401(k). All IRA contributions are post-tax, so you don’t have to worry nearly as much about the tax ramifications of dispersals in retirement. You can choose from various types of IRAs, so you can find the best fit for your financial and retirement goals. Be sure you speak with a financial advisor to learn which is best for you. Similar to a 401(k), an IRA has an annual contribution limit. IRA contributions were limited to $6,000 in 2022 with catch-up contributions limited to $1,000.
• Shop investment opportunities. Investing your money may be a great way to help it grow over time. But be warned: you can also lose money if your investments tank. Take time to shop investment opportunities to see what’s best for you and your financial future. You can always meet with a financial advisor to help you look for opportunities that fit your strategy. For instance, some younger people like to be aggressive and put their money somewhere that’s going to bring back a large return despite the high-risk nature of the investment. Others would prefer to be more conservative as they near retirement and take the low-risk road. Your investment advisor should present opportunities that fit your preferences, then help you build a plan and track of your money.
• Is semi-retirement right for you? Not everybody quits working and then goes straight to the golf course. Instead, you may want to ease into retirement by reducing the hours you’re working, or doing some consulting work, which can help you adjust to a new routine while continuing to bring in a paycheck. You may also decide to venture out and try a part-time job that’s entirely out of your field. Again, this allows you to bring in money, while limiting your workload, and opening up some leisure time before jumping feet-first into retirement.
• Look into a reverse mortgage. If you have at least 50% equity in your home, you may consider taking out a reverse mortgage to help supplement your retirement fund. It lets you turn the equity in your home into cash (e.g., lump sum, monthly installments, or a line of credit) without having to sell your home or pay additional monthly bills. You won’t pay back any of the money until you (or your heirs) sell the home. While this may be a great option for some, it’s not right for everyone. So, make sure you fully understand all the advantages and disadvantages of reverse mortgages, the many different types available, and, as always, shop around for the best deal before you decide on a particular lender. In addition to a minimum requirement for equity, applicants must meet other criteria that include:
• You must be at least 62 years old.
• The home must be your primary residence.
• You must meet with a reverse mortgage counselor who’s approved by the Department of Housing and Urban Development (HUD).
• Your property must be a single-family home or multi-family home with two to four units (one unit must be occupied by you).

Planning for retirement can be exciting—but there’s a lot to know! So, do your homework, talk to a financial advisor, and understand the different retirement options available to you.