How to Save for Retirement – Savings Beyond your Employer Contribution Plans

How to Save for Retirement – Savings Beyond your Employer Contribution Plans

Saving for retirement is a sound theoretical plan for everyone. Unfortunately, not many people can achieve their goals. Precisely, many people fail to correctly analyze their retirement life spending needs.

Retirement planning can go well beyond conventional retirement contributions and dependency on the social security income. If you plan ahead of time, you can analyze how much you would need in your retirement life to live a comfortable (read luxurious) lifestyle.

There is no denying the tax savings through retirement plans. The Social security fund is also an added advantage for your retirement life. You can expect to spend far less (or far more) once you retire. You can match the spending budget with careful planning that earns you well enough.

How Much you Should Save for Retirement?

Answering this question can be tricky. Let’s make it simpler for you. You should spend at least 10-15% of your current pre-tax income. It means you’ll keep a similar lifestyle after retirement if you start saving early with at least 10% savings.

The 10% minimum saving rule applies to those people starting earlier. If you didn’t save enough until your 40s or 50s, you’ll need to contribute more towards your retirement savings. You’ll also be able to contribute more with conventional retirement plans with your catch-up extended limit.

For simplicity, you can take the saving rule as a progressive ratio with your age. It means if you have started late, you’ll need to save more. For investments, the younger you start the better it is. You can invest more aggressively in stocks in your 20s and 30s than in your 50s and beyond.

How Much would you Spend during a Retirement life?

Your basic requirements aside, lifestyle can be an important factor in deciding your future spending needs. According to a research report by Fidelity, you can expect to spend in a range of 55-80% of your current pre-tax income.

If you are earning higher today and saving around 10-15% of your total income, you can get through with less in the future. If you don’t have much savings right now, or you are earning hand-to-mouth, you’ll need more to afford the current lifestyle in the future.

As you adjust income and expenses for inflation, consider the same effect on retirement life spending. Other factors like family dependents, home mortgage, vehicle financing, and investment are also important factors in determining what you’ll by the retirement age.

You can expect to spend less as your life progresses. Similarly, you can expect to spend less on expenses such as housing, vehicles, travel, and other luxuries. However, you’ll incur more on some specific expenses as well such as medical and health coverage as you grow.

Retirement Income – Plan Early

Let us now explore the retirement income options. Once you have analyzed the expenses for your retirement life, you can now estimate your current income to see if it covers your retirement goals.

You can expect to receive regular income through these sources in your retirement life:

  • Social Security
  • Retirement Plans
  • Retirement Savings
  • Other Investments and income

You can withdraw social security benefits at the age of 62 and beyond. You can get an estimation through Social Security Administration to get an idea of how much you’ll receive.

Whatever contribution plan, investment plan, or savings plan you intend to use, start as early as possible. Retirement contributions are reinvested and the compounding effect takes your savings to greater multiples.

Employer Contribution Plans

Defined retirement plans are preferred tools for retirement planning. These retirement plans come with certain tax benefits and savings. There is an upper limit on retirement contribution for each plan, but you should maximize the contribution for your chosen plan.

Traditional IRAs and Roth retirement plans come with certain benefits. Roth IRAs provide tax benefits for a person with a higher income tax bracket. The contributions towards the Roth are taxed upfront. However, you cannot withdraw contributions from a Roth plan before the age of 59 ½.

Similarly, traditional IRA plan contributions are not taxed up front. These savings will be taxed once you start withdrawing. You can withdraw from traditional IRAs as these are taxed at withdrawals.

Employer-Sponsored Defined Contribution plans are another important tool to maximize your retirement savings. Employer-sponsored plans such as a 401 (k) can offer tax and saving benefits at the same time. Your contributions towards 401(k) are pre-taxed. Hence, you can use it as an emergency fund as well, as it allows you to withdraw money.

Your employer match for contribution plans can be an important saving tool. Some employers offer a dollar-for-dollar matching contribution. For example, if you contribute as much as $ 15,000 annual towards your 401(k), your employer will contribute the same amount as well.

However, there are upper limits for employer contribution plans. For the tax year 2021, you can contribute a maximum of $19,500 and $26,000 for age 50 and above. The combined contribution limits go to $ 58,000 and $ 64,500 respectively.

Saving Beyond Retirement Plans

There is a common notion to depend on retirement contribution plans only. You can stretch beyond the traditional retirement contribution plans. Particularly, if you are planning to live a comfortable life.

Keep in mind, several factors affect your needs in retirement life. The most prominent factor remains your lifestyle. Some people relocate to their favorite places, others relocate for the conveyance of reduced costs. Some people defer their travel and adventure plans for a relaxed lifetime, others stick to a common lifestyle.

Understanding the investment options can help you maximize the retirement savings. For instance, you can afford to put money in a risky investment such as stocks in your 20s or early 30s. You’ll have ample time to recover the losses if any. But in your 50s, you should stick to more conservative investment options such as bonds, retirement plan contributions, and high yield saving accounts.

Investing in Stocks – dividend stocks

Investing in stocks is the riskiest investing strategy. You can choose to invest in Index Funds, Mutual Funds, ETFs. If you invest in managed funds, you’re reducing risk. On the other hand, you’ll increase the cost of investment, as well as lower the returns.

For retirement planning, the best stock investment strategy should be investing in dividend-paying stocks. Most of the companies that pay a regular dividend are well-established and come with stable financial statements. However, dividends are not legal liability for these companies. Hence, dividends are not guaranteed income.

You should consider investing in dividend stocks to reinvest for retirement savings. Many companies offer dividends in the form of stocks as well. That can convert to your long-term capital gains for retirement savings.

Investing in Annuities

Annuities are insurance plans. Annuities can be with variable or fixed returns. Both types of annuities come with different advantages. For instance, variable annuities offer a higher return on investment.

Fixed annuities offer a lower but regular return on investment. Return on fixed annuities is guaranteed and protects you against any market downfalls. Unlike variable annuities that offer higher potential return, you can lose some part of investment in a market downfall.

Fixed annuities can be a good retirement saving tool for a conservative investment strategy. It can offer you a consistent and confirmed income. You can get an idea of future income through fixed annuities upfront. It can reduce your investment risk as well as help you plan for retirement savings.

Investing in Rental Real Estate

Real estate income can be considered as a secured investment. One key feature of real estate income is that it is an inflation-adjusted sector. Rental income from real estate can be closely linked with dividend stocks.

You can expect good investment returns from real estate investment. However, it is an active income strategy. It means you’ll spend maintenance expenses as well as put effort to earn money. We have seen in the past; real estate sector can also pose economic risks.

Maximizing your benefits from the real estate sector without taking too much risk can be an ideal option. You can invest in the Real Estate Investment Trusts (REITs) to maximize the potential benefits of the sector without taking too many risks.

Balancing your Investment Portfolio

A key aspect of maximizing the investment rewards is to take a balanced approach with investment tools. Diversification of investment remains the golden rule for any kind of investor.

When you are investing for retirement life, you should balance the investment portfolio by considering several factors. These factors include your risk tolerance, timeframe, and saving goals. For instance, stocks provide the highest return on investment but are the riskiest investment option as well. Consider balancing your investment portfolio with stocks, bonds, ETFs, REITs, annuities, and retirement plans.

Retirement planning can go beyond the employer contribution plans. The most important factor is to analyze your retirement living expenses. Once you set clear objectives, you can choose the investment tools and savings to accomplish the desired goals.


The information provided is for educational purposes only and is not intended as investment advice for anyone. All information discussed is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The views presented today are those of WealthCare Financial and do not necessarily represent the views of AlphaStar Capital Management, LLC. The opinions expressed are subject to change without notice and do not constitute financial, legal or tax advice. Please consult your financial professional before executing any financial strategy.  Investment Advisory and financial planning services are offered through AlphaStar Capital Management, LLC, an SEC registered investment adviser. AlphaStar and WealthCare Financial are independent entities

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