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  • Tactics to Boost Your Retirement Savings – If You’re Over 50


    Tactics to Boost Retirement Savings

    How much do you need for retirement? Well, investment research firm Morningstar has a handy but somewhat scary stat: $1.18 million. Using average annual returns of 6 percent and pegging inflation at 2.5%, Morningstar calculates that’s the amount of savings needed to achieve $40,000 per year in annual income for 30 years *1. Here are some tactics to boost your retirement savings if you’re over 50.

    If your retirement assets aren’t quite on track to meet that goal, there are two financial strategies that can help – and they both have additional tax benefits. We take a close look at the IRS’s Catch-Up plan and Health Savings Accounts.Key concepts we cover: IRS Catch-Up Plan, Health Savings Accounts (HSAs) and concordant tax benefits.

    If You’re Over 50 and Underinvested, the IRS Can Help

    According to investment management firm Fidelity, in the first quarter of 2019, Americans with 401(k) plans aged 50-59 had on average $174,100 saved. That $800K shortfall sounds like an impossible journey to cover before retirement, but there is a way to get there. Thanks to what the IRS calls the “Catch-Up” contribution, employees 50 and over are allowed to contribute an additional $6,500 per year to a 401k plan. That additional money invested over time has a significant impact on the total value of a retirement plan invested from age 50-70.

    The Importance of Catching Up

    A $5,000 contribution results in retirement savings of $194,964 over 20 years. However, the maximum gets you to $760,358 – and the max-plus the “catch-up” brings you to $1,013,811. At the end of the day, that extra $253,453 can go a long way toward the cost of living, travel and medical bills (Source: Nerdwallet).

    For all calculations, we are assuming retirement at 70 years old to increase income, savings and Social Security benefits. We’ve looked at the impact that different levels of savings have on your plan over time, assuming a 6 percent annual return rate. The maximum level of allowed contributions is set annually by the IRS and increased to $22,500 per year, plus the $7,500 catch-up in 2023.

    How Do Taxes Play into This?

    The other side to our 401(k) contribution story is the tax impact. Taking $30,000 per year (the maximum contribution of $22,500 plus the $7,500 catch-up) out of disposable income and putting it to work in savings can seem like a big sacrifice. However, since traditional 401(k) contributions are made with pre-tax dollars, the tax savings can be substantial. Taxes on traditional 401(k) contributions are deferred and paid during retirement when lower income can result in a lower tax bracket.

    An Underappreciated Extra – Health Savings Accounts Are Not Just for Medical Expenses

    Another one of the tactics to boost your retirement savings is Health Savings Accounts (HSAs). They are a way to save and invest dollars that are earmarked for medical expenses. As you move into the 50s and beyond, these types of accounts become even more critical. They were created to be used alongside High Deductible Health Plans (HDHP) to provide savings to cover the deductible (that’s the one caveat – you must have an HDHP to qualify for one).

    These accounts provide tax-advantaged savings for current or future medical expenses, including deductibles, co-insurance, prescriptions, vision expenses, and dental care. In certain circumstances – for instance, if you need to use COBRA coverage to bridge a gap in healthcare, they can also be used for premiums. Unused balances are carried over to the following year, funds never expire, and they can be passed on to a beneficiary after death.

    HSAs Have Significant Tax Advantages

    HSAs are typically referred to as having a “triple tax advantage” because accounts are funded with pre-tax dollars; interest or investment growth is not taxed; and if used for qualified medical expenses, withdrawals are not taxed. However, if you do use withdrawals for non-medical expenses, they are taxed at your regular rate and there is no penalty.

    …And There’s a Catch-Up

    The maximum contribution for an individual in 2023 is $3,850, and for a family, it’s $7,750. If you are over 55, you can contribute an additional $1,000 to either the individual or family maximum. All of these work together to ensure you’re covered for any regular or surprise health expenses.

    Bottom Line

    Even if you are currently underfunded, with these tactics to boost your retirement savings, your financial advisor can help you formulate a plan to get there in time for a successful retirement. Working together with you, they’ll implement tax-advantaged savings and investing strategies that will put your money to work and get you on track.

    1. Maranjian, Selina. Wake Up! This Is Your Financial Wake-Up Call. The Motley Fool. July 21, 2019.

    Hennion & Walsh Asset Management currently has allocations within its managed money program, and Hennion & Walsh currently has allocations within certain SmartTrust® Unit Investment Trusts (UITs) consistent with several of the portfolio management ideas for consideration cited above.

    Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.

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