A lot of people can't wait to see 2020 come to an end. But as we enter a new year and, hopefully, a more positive one on the whole, it's important to take the opportunity to set yourself up for a comfortable, secure retirement. These tips will help you plan accordingly in the coming year, as well as in the years that follow.
1. Boost your savings rate
The more money you put into your IRA or 401(k) plan, the more wealth you'll have at your disposal during your later years. Padding your savings can also help compensate for a reduction in Social Security benefits, something that may happen as early as 2035 and affect future retirees.
In 2021, you'll be allowed to contribute up to $6,000 to an IRA if you're under the age of 50, or up to $7,000 if you're 50 or older. If you have a 401(k), these contribution limits are even more generous: $19,500 if you're under 50, and $26,000 if you're at least 50.
2. Make sure your investments are appropriate for your age
The money in your IRA or 401(k) shouldn't just sit in cash. Rather, you'll need to invest it so your nest egg grows over time. But your investments should be age-appropriate, so take a close look at them to make sure that's the case. If you're at least a decade away from retirement, you should feel comfortable having the bulk of your assets in stocks, because stocks are likely to deliver a much higher return than bonds.
Bonds, however, are less volatile, so as retirement nears, you'll want them to slowly but surely comprise more of your investment mix so that by the time you leave the workforce for good, you have roughly a 50/50 stock/bond split.
Of course, there's definitely wiggle room with that 50/50 suggestion. If you're planning to retire in your 60s, have an average tolerance for risk, and think you'll live a typical life span, then it's a good bet. But you may have a higher risk tolerance, or access to other assets that allows you to invest more aggressively. You'll need to evaluate your specific circumstances to decide how to invest, but the point is to pay attention to your allocation at every stage of life.
3. Don't forget to save for healthcare
Healthcare could end up being your largest expense in retirement, so it pays to specifically allocate funds for it. If you're eligible for a health savings account (HSA), that's generally your best bet.
With an HSA, you can sock away funds for short- and long-term medical expenses, and any funds you don't withdraw immediately can be banked, invested, and carried into retirement. Eligibility for an HSA hinges on being enrolled in a high-deductible health plan, but if that's the case, in 2021, you can contribute up to $3,600 if you're single, or up to $7,200 if you're funding an HSA on behalf of a family. Furthermore, savers 55 and over get a $1,000 HSA catch-up on top of these limits.
4. Check up on your Social Security benefits
Even though Social Security cuts are currently on the table, it's still important to get as much money from the program as you're entitled to. That's why one key move to make in 2021 is to check your annual earnings statement. That statement will summarize your taxable wages for Social Security purposes and give you an estimate of your monthly benefit at full retirement age.
It's possible for an earnings statement to contain an error that works against you, like only listing part of your income for the year instead of your full income. So be sure to give yours a thorough read. If you're under 60, you'll need to create an account on the Social Security Administration's website to access that document. If you're 60 or older, it should come to you directly in the mail.
The more effort you make to plan for retirement, the more relaxed and rewarding that period of life is likely to be. Follow these tips in the coming year, and keep them handy for the future so you stay on course for retirement.