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Reaching Financial Freedom to Retire in the Triangle is Possible with These 4 Programs:

Whether you live in Raleigh, Durham, or Chapel Hill,  we know that many of our neighbors have the goal of achieving financial freedom in retirement. We also know, this is not easy. According to the latest estimates from Fidelity, the average retiring couple (65-years old) can expect to pay $260,000 in healthcare expenses in retirement. The rising costs of life after retirement can seem overwhelming to our aging American population. This is especially daunting to those who are nearing retirement age, and may have not saved enough early on. The reality many Americans are facing is that one out of every three Americans has nothing saved for retirement and 56% have just $10,000.   

When it comes to achieving financial freedom these retirement tips can help:

Start Saving Early For Retirement

We know that by the time you are about to retire, it is seemingly impossible to start saving early enough. Even if you are just 10 years out from retirement, you have time to right the ship and the results can pay off. It doesn’t help to look back and think what if, you can only change behaviors moving forward.

Take Advantage of Retirement Savings Programs
Now is the time to start taking advantages of programs and tax advantages that many employers in the Triangle and government offices offer people to help them achieve financial freedom in retirement.

    “Defined contribution plan — A tax-advantaged retirement plan in which workers contribute a percentage of their incomes to these accounts. The employee and/or employer can make contributions on a regular basis for as long as the plan is active. Not all companies match worker contributions, and some that do match do so with company stock rather than cash. The amount the employee ends up with in retirement depends on the contributions made and the return on those invested funds.

For the most part, workers use their own money to fund these plans and bear all investment risk.

Depending on the plan, the employee can make pre-tax or after-tax contributions. Participants in a 401(k) or SIMPLE IRA, for example, get to deduct contributions from their gross income, so they pay less to the IRS upfront. When the employee retires, the money is taxed upon withdrawal from the account. With a Roth 401(k), workers put money in after payroll taxes are withheld, meaning the account doesn’t offer an immediate tax benefit. But when the money is withdrawn, it is tax-free.” -BankRate

401K Matching

  1. Did you know that most employers in North Carolina offer an defined contribution plan such as  401K and match up to a certain percentage. This is one of the most underutilized programs and it is “free money!”
  2. For example, let’s say your employer offers a 401K match equal to 100% for the first 3% of your salary and 50% for the next 3%. Now let’s say you make $50,000 a year in Raleigh. You will be contributing $3,000 pre-tax and your employer will be contributing an additional $1,500 dollars. At the end of 10 years when you are ready to retire, you will have $45,000 saved without counting any of the earned interest from the investments made ($15,000 of which came “free” from your employer). This also does not consider any raises you may receive to increase your contribution percentage.
  3. Don’t forget, you can contribute as much as you want to your 401k, pre-tax. This will also lower your tax payments at the end of the year as the money is taken out pre-tax. Of course, you will have to pay taxes when you withdraw from the account in retirement.

    “Individual Retirement Account (IRA) — IRAs are retirement accounts with tax advantages. You may contribute up to the limit for each taxable year. Or, if you’re age 50 or older, you can put aside more. But your contributions can’t exceed your earned income. The investment grows tax-free until you begin making withdrawals, usually after age 59½. Take money out before then and you will usually get hit with a 10 percent penalty unless you meet certain specified requirements.” -BankRate

Roth IRA

  1. Roth IRAs are a great way to start earning interest on money that is invested post-tax. A huge benefit of these programs is that you will you not have to pay taxes on any of the money when you take it out of your account in retirement. This is a great way to balance out your 401K tax burden.
  2. Roth IRAs are great for people who expect their tax rate to be higher in retirement than it is presently.
    1. For example, if you are just starting out and can afford to pay the taxes on the money now, make the contribution and then you will not have to worry about paying the taxes later on when you may be in a higher tax bracket.

Traditional IRA

  1. This type of IRA is designed for the person who is looking for a tax-deductible option. Any contribution to a traditional IRA will allow you to write off the income contributed on both your state and federal income statements. This is different from the Roth IRA.
  2. Another key difference is that because the contributions are tax-deductible the interest you earn on the account is taxable; however, this is only when you remove it from the account.  

Health Savings Accounts (HSA)

  1. Another under-utilized program that many company health care policies offer their employees is an HSA. This is a non-taxed account that you contribute pre-tax dollars to for healthcare related costs.
  2. An important thing to know about an HSA, is the money can be invested once you have a certain level in the account (depending on your program) and is yours forever regardless, of if you stay with the company or not. Many employers will also contribute funds to this account.
  3. The funding in this account can be used to help off-set healthcare costs in retirement as well (remember, you can expect to pay $260,000 in retirement). That means you have more disposable income from your other savings accounts.

Financial Freedom Starts with the Having the Right Financial Advisor

We know the road to achieving financial freedom can seem like a long and difficult one. That is where we come in, we want to help you reach your goals by matching you up with an advisor who understands your needs. Take the next step now and schedule a consultation to get started achieving financial freedom and the retirement life you’ve always dreamed of.

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