Now is the time of year when many people are assessing their retirement savings. I am being asked should I contribute to my pre-tax or post-tax plan? My question is; when do you want to pay the tax? Let’s look at a few questions that are important to your retirement savings.
Should you save to a Traditional IRA or a Roth? Also, do you contribute to the pre-tax portion of your 401(k) or to the Roth 401(k)? The question is, can you afford to wait 5 years or more for your Roth withdrawals to be tax-free? Roth contributions must be deposited at least 5 years for the withdrawals to be tax free. Maybe a combination of both works best.
When should you start taking Social Security? I never want someone to pull before Full Retirement Age due to the fact that you will take a permanent 30% cut in your Social Security. Every year past Full Retirement Age that you wait you will receive an 8% increase in your Social Security. My recommendation is to wait past Full Retirement Age if possible.
Lastly, take a hard look at your spending. Can you pay cash for your items? By this I mean, when you receive your credit card bill, can you pay it in full? If not, you need to ask with each purchase – is this a need or a want item? Controlling your spending will help lead to a comfortable retirement.