For those that are saving up for retirement, there are some good things that are happening this year. In 2020, a majority of accounts will have contribution limits increased to allow you to put in more for your retirement. The accounts that will see these changes will be to the federal Thrift Savings Plan (TSP), 401(k), 403(b), and a majority of 457 accounts.
The TSP, 401(k), 403(b), and most 457(b) plans will have a contribution limit increase of $500 from $19,000 to $19,500 next year. Those that are 50 or older can put in an additional “catch-up” contribution limit of $6,500, also a $500 increase from this year.
Those that have a SIMPLE retirement account will have a max contribution limit of $13,500 for 2020.
The contribution limits for traditional IRAs and Roth IRAs will stay the same as this year’s limits. The limit will be $6,000, and the catch-up contributions will be limited to $1,000. IRAs will also not have a cost of living adjustment made.
However, there is a new change that is happening to Roth IRAs next year. The phase-out income range to qualify people to make contributions are being increased.
These new ranges are:
$124,000 to $139,000 for single tax filers from this year’s $122,000 to $137,000.
$196,000 to $206,000 for those filing jointly from this year’s $193,000 to $203,000.
Those who are married but filing separately will have the same range as this year’s at $0 to $10,000.
So how much should you be saving for your retirement?
A good and easy way to figure this out is to figure out how much money you will need once you are retired and make that your target.
For a majority of retirees, they spend less than what they did when they were working. So generally, aiming for 75% of your current income for your retirement income is a great start to figure out your savings target. For example, if you make $95,000 at this moment, you will have $71,250 as your retirement income goal.
Now, let’s calculate Social Security into this scenario. The average monthly Social Security payment is $1,358, which totals to $16,296 annually. This means you will only need to get $54,950 from other streams of income to reach your $71,250 target.
Most calculate their target goal with about 25 years of retirement, which would total to $1,781,250. This may seem like an impossible number, but compound interest will be key to reach your goal.
To ensure that you are taking as much advantage as possible in regards to your retirement savings account, be sure to check out the following pointers:
- Be sure to have your retirement savings automated to grow value in your savings on a consistent basis.
- If your workplace offers matching contributions, be sure to try and meet the limit to get as many free dollars as possible.
- If you can do it, try and meet the maximum contribution limit as much as you can throughout your working career.
- Once you reach the age of 50, be sure to contribute more than just the general max contribution limit but also the catch-up contribution limit that is eligible for those 50 and up.
- Diversify your taxes and compounding returns by utilizing taxable and tax-advantaged accounts.
- Strategize how you plan to keep within your budget when you begin to touch your retirement savings.
Keep in mind that your savings target goal can change, depending on your situation. So be sure to check in and recalculate from time to time to ensure that you are on your way to meeting your goal or to even adjust the goal up or down.
For those super savers out there, an increase in contribution limits is a great thing to take advantage of because that means more money when you need it the most, which is when you aren’t working.