Retirement
Planning

401(k)s
A 401(k) is a tax-deferred retirement savings account offered by employers to their employees. Employees contribute money to their account on a pre-tax basis, and employers can choose to match a percentage of that contribution. The money is deposited in various investments, typically a line-up of mutual funds (which are selected by the employer). Employees have the freedom to choose investments that meet their unique tolerance for risk, whether it’s conservative, moderate or aggressive. Investment income accrues and compounds tax-free. Withdrawals are taxed at the normal tax rate, as long as they are made at age 59½ or older.
Many employers are also starting to offer Roth 401(k)s. Unlike a traditional 401(k), contributions are funded
with after-tax money, so they are not tax deductible; however, qualified withdrawals are tax-free. As of 2020, participants can contribute up to $19,500 per year to a traditional or Roth 401(k).

IRAs
An individual retirement account (IRA), traditional or Roth, is a tax-deferred retirement savings account established by an individual person (typically someone who is self-employed). IRA accounts are held by custodians, such as banks or brokerages. Unlike 401(k)s, IRAs allow account holders to choose from a much larger universe of mutual funds. They can also own many different types of assets within the account, including stocks, bonds, treasury bills and certificates of deposit (CDs).
Like 401(k)s, contributions to traditional IRAs are generally tax deductible. Earnings and returns grow tax free and you pay tax on withdrawals in retirement. Contributions to a Roth IRA are made with after-tax dollars, but withdrawals are tax free in retirement. As of 2020, the annual contribution limit for traditional and Roth IRAs is $6,000.

The earlier you start saving, the better chance your money has to grow enough to achieve your retirement goals. One way to illustrate this is the Rule of 72. It’s an easy way to calculate how long it’s going to take for your money to double.
Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double. The earlier you start saving, the more periods you will have for your money to “double.” Here are some examples:

Once you get going in your IRA or 401(k), it’s easy to go on autopilot. You’ve officially made the move to save for retirement. You made sure to start early. You’re good, right? Wrong! It’s time to take the next step: increasing your savings. Remember your second retirement savings mantra: Save as much as you can.
Cutting or reducing spending on things you don’t really need could allow you to bump up the money you’re putting into your 401(k) or IRA. And how about increasing your savings rate when you get a merit increase or a bonus? While you’re at it, couldn’t you bring dinner leftovers for lunch a couple times a week — or shop for a better cell phone plan or find a lower care insurance premium? Not to mention buying a certified pre-owned car instead of a brand new one. The savings can add up quickly.

Catching Up
If you are age 50 or older, the IRS allows you to contribute an additional amount of money to your 401(k) or IRA over the annual contribution limit. It’s called – appropriately, for many people – the “Catch-up Contribution.” If you’ve not been able to save as much as you wanted due to other financial priorities (such as funding a child’s education, caring for an aging parent or something else), this is a great opportunity to get back on track with your retirement savings. As of 2020, here are the additional catch-up contribution limits for people age 50 or older:

Here’s a big reason to start saving as early and as much as you can: an April 2019 report from Fidelity Investments estimated that a healthy 65-year-old couple retiring in 2019 will need $285,000 to cover their healthcare costs. Whether retirement is a long way off for you, or it’s starting to get closer, it’s a smart move to start planning for healthcare costs. The AARP Health Care Costs Calculator (www.aarp.org) is an educational tool designed to help you estimate your health care costs in retirement. You can include a spouse or partner in the calculation as well.

While this brochure gives you some basics to help you achieve retirement planning success, you should know that professional help is available if and when you need it. LPL Financial Professionals can give you hands-on personal guidance and advice to help you determine your retirement goals and how you can achieve them. Here’s how they can help:

• Help you determine an appropriate retirement saving goal based on anticipated future living expenses
• Help you factor in variables such as inflation, future health care expenses, life expectancy and projected investment returns
• Develop an investment strategy to help meet your long-term needs
• Discuss professionally managed IRA investment solutions that may be of interest to you
• Help you balance your retirement savings goal with other financial goals
• Meet with you on a regular basis to track progress and make adjustments as necessary