Every Retirement Question You Could Possibly Have, Answered by an Expert


Let’s face it: Thinking about retirement planning is overwhelming and dare I say, not much fun. Most of us are just trying to figure out how to budget our day-to-day lives as gals in our 20s and 30s, so worrying about where we’ll be financially in a couple of decades isn’t exactly at the forefront of our minds. However, the reality is that it actually is a pretty important thing to think about and have a decent grasp on. Maybe you’ve only made it as far as wondering if that extra shot of espresso in your latte is going to affect your retirement dreams or have found yourself staring at your bank account, scratching your head, and thinking, “Is this enough to retire on?” If that’s the case, you’re not alone.

But fear not because it’s never too early or too late to get the ball rolling. We’ve enlisted the expertise of Lorna Sabbia, Head of Workplace Benefits at Bank of America, to help us understand all of the major things you need to know when it comes to retirement (in the least overwhelming way possible). Here’s the low-down you’ve been waiting for (or the one you’ve maybe been putting off until now):

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MEET THE EXPERT

Lorna Sabbia

Head of Workplace Benefits at Bank of America

Lorna Sabbia is a 29-year veteran of Bank of America who leads a team which provides retirement and workplace benefits solutions to companies of all sizes. This includes client service & management, plan participant experience, retirement research & insights and sales support for 401(k), Equity and Health Savings Account plans, as well as other company benefit programs.

When should I start planning for my retirement?

Lorna Sabbia likes to say that financial wellness is a journey. In short, it’s never too early to start planning. A good place to start is identifying your long-term financial goals and asking yourself key questions that can help you gauge what your personal course of action should be. Here are a handful of questions to consider when starting to save for retirement:

  • What are your top financial priorities?
  • What is your ideal timeline for retirement?
  • How much income will I need in retirement to maintain my desired lifestyle?
  • What are my current expenses, and how might they change in retirement?
  • What will my sources of retirement income be (e.g., savings, pensions, Social Security)?

Once I start planning, how do I know how much I need to save?

While having a single number for your retirement savings would make it easier to plan, the truth is that the answer is unique to the goals of each individual, and can fluctuate over time. Here’s a simple way to get started on coming up with an amount that’s best suited for you:

  • Calculate your future expenses: Create an estimate of how much you’ll need based on what you live on now and how your expenses might change when you retire.
  • Add up all your potential income sources: Remember, your long-term retirement savings are only one component of your future retirement income—make sure you’re taking things like Social Security into account as well.
  • Plan ahead for the future and account for any gaps: Factors such as inflation and cost of living adjustments are important things to keep in mind. To see where you are now and what you might need to change in the future, you can use tools like the Merrill Personal Retirement Calculator. This checkpoint gives you a projection of your savings to see if there is a gap between what you’ll have and what you’ll need so you can adjust your strategy if necessary.

Once you’ve sat with these questions and have a better idea of what your goals are, you can also consider setting up an appointment with a financial advisor. Financial advisors can provide you with personalized advice and guidance to help you achieve your unique retirement goals. They can also provide you with access to educational tools and resources to help manage your money more confidently. Starting to plan for retirement can be a bit daunting, so having someone to help guide you through the early stages is incredibly helpful.

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Source: Tima Miroshnichenko

What are the different types of retirement accounts?

Once you start planning your retirement, one thing that may be a bit of a surprise is all of the different types of accounts that are out there. Speaking to a financial advisor is the best way to determine what type of account is the best fit for your personal circumstances, but here is a general breakdown of the primary retirement accounts:

Traditional IRA

An individual retirement account (IRA) offers tax advantages to encourage people to save for retirement on their own. If you meet certain parameters, you can take a current income tax deduction based on your contributions (deposits). When you’re ready to begin taking distributions (withdrawals) in retirement, you’ll pay income tax on part of (or all of) the distributions. Distributions are taxed on the account’s accrued earnings and the contributions you made for which you received income tax deductions in the years you made the contributions.

Roth IRA

A Roth IRA offers tax advantages to encourage people to save for retirement on their own. Unlike a traditional IRA, Roth contributions are made with after-tax dollars, so you do not receive a tax deduction for your contributions. As a result, when you’re ready to take distributions in retirement, they are completely tax-free.

SEP IRA

A SEP IRA is designed specifically to meet the retirement needs of self-employed individuals and small business owners (I’m looking at you, freelance girls). Unlike other retirement plans, they’re simple to set up and easy to administer. They allow you to make significantly larger contributions than a Traditional or Roth IRA.

401(k) Plans

These are employer-sponsored retirement plans that allow you to invest your pre-tax salary on a tax-deferred basis. With these plans, your employer provides the investment choices available to you, with it usually being a mix of mutual funds and company stock. The earnings in your account grow tax-deferred until you withdraw them. According to Bank of America’s recent Workplace Benefits Report, two-thirds of employees say they are confident their 401(k) will build enough savings to allow them to live the retirement they envision.

If your job offers a 401(k) plan, set up automatic withdrawals from your paycheck each month to go directly into your 401(k). Your employer may even offer to match your 401(k) contribution up to a certain percentage, so you can save even more toward retirement. Make sure you at least contribute what your employer will match as it’s basically free money—so don’t leave it on the table!

What happens to my employer retirement plan if my job changes?

Generally, you can take a distribution for the balance of your 401(k) account once you leave your company. You may be able to roll your money over to an IRA, convert it to a Roth IRA, or put it into a new employer-sponsored retirement plan (though additional taxes may apply). Whatever you decide to do, it’s important to research, know the rules, and compare the various options.

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Source: Sora Shimazaki

While saving for retirement continues to be a top goal for employees in 2024 according to Bank of America data, immediate financial challenges—like paying off credit cards or saving for unexpected expenses—are also important. Financial wellness at its core is the ability to meet your needs and manage short-term goals while also having plans in place for when circumstances change. While it’s important to continue to pay off your debt, it’s also important to make sure you’re preparing for your future—even if it’s only a small contribution to your retirement funds right now.

So, we suggest starting small with what you can reasonably manage—say contributing around 10 percent of each paycheck— and increasing your contributions as your income increases. The earlier you get started on your retirement savings, the more time your money will have to grow, ultimately setting you up for future success.

How often should I review and adjust my retirement plan?

You should review your retirement plan at least once a year and make adjustments to ensure you stay on track with your retirement goals. Important life events may also lead you to review your current plan. Some of these events could include a change in income (like getting a new job or losing a current job), marriage, purchasing a house, or having a child. Financial advisors are great resources to help review your retirement plan and make sure you’re staying on track to meet your financial goals when your circumstances change. Additionally, if your employer offers workplace benefits, they also likely offer tools and resources to help you track your progress toward your financial goals. Make sure you take advantage of any digital tools or educational materials offered.

All in all, it’s important to stay as in tune as you can with your ever-changing lifestyle, needs, career, and personal goals. There are many resources out there to help this overwhelming topic feel more manageable. If you dedicate the time to understanding the tools that are available to you, you’ll feel more confident in your future.

Additional Resources

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This post is sponsored by Bank of America, but all of the opinions within are those of The Everygirl editorial board.

 



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