It’s often said that time seems to pass faster as we grow older. Most middle-aged adults contemplating what they’ll do after they retire — if they’re able, of course — know the feeling all too well.
Even if you’re not yet at the point in your career where retirement feels imminent, you owe it to yourself and your family to begin thinking seriously about what comes next, and to ensure you’ll have the resources to do whatever it is you’ve always wanted to do in your life’s second act.
Let’s start with the basics. Those just beginning the retirement planning process should take these seven steps as soon as practically possible.
1. Open Tax-Advantaged Individual Retirement Accounts, If You Haven’t Already Done So
Technically known as an Individual Retirement Arrangement, an IRA is one type of retirement account that’s available to pretty much every American adult. You’ll want to check with the IRS and your tax advisor about contribution limits, income restrictions, and other fun stuff, but there’s no reason for you not to have either a traditional IRA, a Roth IRA, or both.
2. Retain a Financial Advisor You Can Actually Trust
Next, find a financial advisor and wealth management partner you can actually trust. Award-winning financial advisor Daniella Rand tells prospective to choose a partner whose track record speaks for itself — whose performance is borne out by hard data, not rosy promises.
3. Review Your Employer-Sponsored Retirement Plan Options
If your employer offers a 401(k) or other qualified retirement plan, enroll in it at your earliest convenience. Doing so could significantly reduce your taxable income while growing your nest egg.
4. Set Your Recurring Contributions at a Realistic Level (And Take Advantage of Your Employer Match)
Set your recurring qualified plan contributions at a level that you can afford. Try to meet your employer’s match, if it’s offered. For instance, if your employer matches 100% of your first $3,000 in annual qualified plan contributions, you’ll double your money up to that threshold.
5. Use Health Savings Accounts to Your Benefit
Employer-sponsored health savings accounts offer powerful tax benefits for those who qualify. Even if you don’t need to use the funds in your account for medical expenses, they’ll grow over time and add to your long-term savings.
6. Ask Your Financial Advisor About Backdoor Roth Contributions
Not all taxpayers are eligible under IRS rules to make Roth IRA contributions, but many have a way around this restriction: a “backdoor” transaction that reallocates funds held in a traditional IRA. Speak with your financial advisor about the potential drawbacks of this strategy before attempting it, though.
7. Borrow From Your 401(k) Only As a Last Resort (And Pay It Back As Soon As You’re Able)
Only borrow from your 401(k) when absolutely necessary, and pay back the loan out of your own pocket as soon as you’re able. You’re only borrowing from yourself, after all.
Are You On the Road to a Prosperous Retirement?
If you’re able to take these seven steps today, you’ll find yourself in good company — among committed retirement savers ready for whatever comes next. The road ahead won’t be bump-free, of course, but a solid foundation will do wonders for your disposition as your last day of work approaches.