Five Ways to Fuel Your Retirement

Imagine this. You are on the airport runway awaiting takeoff to the Caribbean for a relaxing week full of fun and sun.  Your happy thoughts are suddenly interrupted by a message from the Captain, “Ladies and gentlemen, we had a problem with the fuel truck and were not able to completely fill our plane’s tanks, but we anticipate that we have an 80% probability of reaching our destination. In the interest of time, we will depart as scheduled. Thank you for flying Winging It Airlines.”

Even though the chance of not making it to the islands presents only a 20% risk, you would likely run to the exit after such an announcement driven by fear and panic created by a less than full fuel reservoir.  Interestingly, when it comes to retirement, many individuals have not adequately “fueled up” their retirement savings but still expect their accounts to somehow financially carry them safely through their retirement years.  This is impractical and dangerous.

A 2016 survey by the Employee Benefits and Research Institute (EBRI) reveals that only 21% of workers feel very confident about having enough money for a comfortable retirement. Wow!  If you thought an 80% chance of arrival was bad on Winging It Airlines, how do you like 21%?

Here’s how you can do more to fuel up your retirement savings:

  • Max fund employer sponsored plan – In 2016, $18,000 of pretax contributions are allowed for 401(k), 403(b), or 457(b) retirement plans. This lowers taxable income and enables those dollars to grow tax deferred over your career. For individuals 50 and older, a $6,000 catch up contribution is permissible for a total of $24,000. If you are 49 now but turn 50 before the year ends, you qualify too because the catch up is allowable in in the year you turn 50.
  • Take advantage of paired plans with nonprofit employers – Governmental employers like K-12 school districts, state colleges and universities, and state controlled hospitals often offer both 403(b) and 457(b) plans. You may “double defer” $18,000 along with the additional age 50+ catch up of $6,000. That’s a $36,000 pretax saving opportunity if under age 50 and $48,000 if 50+.  Nongovernmental employers like private hospitals or 501(c)3 nonprofits may have a traditional 403(b) along with a special 457(b) arrangement known as “Top Hat Plan” that is provided only to  a select group of  management or highly compensated employees. There is no catch up with this plan however.  Employer contributions are still allowable beyond employee deferrals.  Talk about fueling up!
  • SEP IRA for your personal business:  If you are a W2 employee who participates in an employer’s 401k plan but also operate your own separate business (i.e. consulting or medical directorship), you may want to consider funding a SEP IRA to tax shelter additional retirement assets. They are easy to establish so long as you have earned income and no relationship exist between your company and employer. The savings opportunity is $53,000!  If your business has employees, you’ll need to include them. SEP contributions for the current tax year may be made up to the final extension deadline which is October 15th the following year.
  • Nonqualified Executive Compensation Plans: Successful business owners may find that traditional retirement plans don’t provide sufficient savings opportunities for them and their key employees.  An Executive Benefits Plan offers solutions that can provide unlimited contributions, tax deductions, tax deferred growth, and tax free supplemental retirement income.  All without the headache of plan rules.
  • Traditional IRA/Back Door Roth: If your income is over $71,000 as a single person or $118,000 if married, then you cannot deduct contributions to a Traditional IRA.  But you can still make the $5,500 nondeductible contribution and enjoy tax deferred growth of those assets.  Don’t want to pay taxes on the growth? Convert your Traditional IRA to a Roth IRA (call a back door Roth) and enjoy future tax free income.

By doing more today to fuel up your retirement savings, you will create a peace of mind for yourself that comes from knowing that the  retirement destination you envisioned for yourself will be reached with plenty left in the tank!

Feel free to email me at awilliams@pivotalwm.com or visit my site at PivotalWM.com to schedule an appointment.

Securities sold through Cabot Lodge Securities LLC — Member FINRA and SIPC. Advisory services offered through CL Wealth Management LLC — SEC registered. Pivotal Wealth Management is not controlled by or a subsidiary of Cabot Lodge Securities LLC or CL Wealth Management LLC.