This article, last updated in December 2023, is original content written by Manchester, CT Financial Advisor Thomas Scanlon, CFP®, CPA.
Are you planning for your retirement? If so, keep in mind, This is NOT Your Parents Retirement.
Your Parents Retirement
What did your parents have when they retired? The BIG THREE which are:
1) Company Pension
2) Social Security
3) IRA / 401(K) Plan / Personal Savings
This trifecta generally provided for a reasonably comfortable retirement.
Your Retirement Plan
Can you rely on the BIG THREE like your parents did? Perhaps, but not likely. Why is this? Start with the pension plan. These have gone the way of the dinosaur. Most businesses have terminated their pension plan and implemented a 401(k) plan. Federal, State and Municipal employees are one of the few groups left with a pension plan.
While you will be eligible to collect social security for most folks now the full retirement age is a few months over age 66. Due to the significant funding of the social security system there are proposals to increase the full retirement age even higher. This puts even more reliance on your IRA, 401(k) Plan and personal savings.
The 401(k) Plan allows for employees to contribute up to $22,500 in 2023. Employees aged 50 and older can make a so-called ‘catch-up’ contribution of an additional $7,500 for a total of $30,000. The government believed that investors weren’t saving enough for retirement and that is why they instituted this catch-up provision. Taxpayers can contribute up to $6,500 to their IRA. Higher income tax payers may not be entitled to an income tax deduction. Taxpayers over age 50 can also make a catch-up contribution of $1,000 for a total of $7,500. The amount you contribute can’t be more than your earned income for the year. If you want help with your retirement planning check out 7 Habits of Highly Effective People That Want Retire.
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