Staying on Track for Retirement During Times of Change

 

On the road to any goal in life, there are bound to be twists and turns. If we keep our eye on the end objective, we can adapt to change and find new paths to get there.

For most of us, saving for retirement is the ultimate long-term financial goal. If you’ve been utilizing a workplace retirement plan to work towards it, you know the importance of saving consistently over time. While a 401(k) is one vehicle for that endeavor, it’s not the only one. Understanding your options can help you keep up the discipline of saving toward the future, even if you are directing your contributions elsewhere.

Check in on Your Blueprint for Retirement

Consider this moment an inflection point in your retirement journey—a reminder to check in on your target and make sure you’re still on track to meet it. If you’ve taken a “set it and forget it” approach to your savings, this is an opportunity to revisit your roadmap and make sure it reflects your current reality and future vision.

Achieving this ideal vision for retirement will be the culmination of many small financial decisions you’ve made throughout your career. Having a personal blueprint for retirement may help with those decisions. From providing a step-by-step saving strategy, to establishing a timeline of milestones, to helping you prepare for the unexpected, this framework can help ensure your plans are clearly defined and your progress is on track. In addition, leveraging a retirement calculator can help you align your savings efforts and investment strategy with your objectives.

Stay Focused on Your Goals

You may be experiencing a change in how you save, but the key is to keep saving. Your money may work hardest for your future if it stays invested, so it’s important to understand the options available to retirement savers beyond workplace plans.

One popular choice is the Individual Retirement Account, or IRA. An IRA is a tax-advantaged retirement savings account offered through a financial institution, such as a bank or brokerage firm. Since it’s not tied to the workplace, you may be able to contribute to an IRA regardless of changes in your career or access to an employer-sponsored retirement plan.

As with 401(k)s, there are two main types of IRAs—traditional and Roth—each defined by its tax implications. With a traditional IRA, your contributions may be tax-deductible (if you meet certain income requirements), investment earnings are tax-deferred, and you pay tax only upon withdrawing funds from the account.

With a Roth IRA, contributions are not tax-deductible, but withdrawals in retirement can be made tax-free. This may be beneficial for those who believe they will retire in a higher tax bracket than the one they’re in while contributing. Keep in mind, eligibility for a Roth IRA is dependent on income, so this option may not be available to high-earners.

For both IRA types, the maximum annual contribution amount for 2021 is $6,000, and individuals aged 50 and above can invest an additional $1,000 in catch-up contributions. Note, this is less than the contribution limits for 401(k) plans, so even if you max out an IRA, you could be putting away less than you were previously—and less than what you need to reach your goals.

One other option to consider: even if you no longer have access to a qualified retirement plan at work, your employer may offer benefits that can help you save towards future costs. For example, if you have participate in a high-deductible health plan, you may have access to a health savings account (HSA), which provides a tax-advantaged way to save and invest for health care expenses now and in retirement. Funds remain in your HSA even if you switch health care providers, change jobs or retire, helping you manage what may be one of your biggest spending categories in your golden years. The availability of such accounts varies by employer, so look into what may be on offer at your organization.

Take Control of Your Future

During this period of transition, you have options to continue saving for your future. In focusing on your goals and understanding the various options available to help you meet them, you can navigate change with confidence. 

Disclosures

This material has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies discussed in this material may not be appropriate for everyone

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Investment Advisers Act of 1940, ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Morgan Stanley and/or as described at www.morganstanley.com/disclosures/dol. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

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