As far as job security goes, individuals are afforded the right to lead fruitful lives. In accordance with employment laws, they must be allowed to secure a comfortable living space, provide for their family’s daily sustenance, and, more importantly, set themselves up for life. The best perk you could have as an employee is the chance to save enough money to fuel your goals once you’ve retired. It all boils down to making the best possible decisions while you’re still on the job.
It may seem a long time for an employee to think about retirement but the sooner they come up with a strategy for maximizing their benefits, the better the payout they’ll receive in the end. Now is always the perfect time to come up with a strategy for increasing the potential retirement yields. The guide below should give a quick rundown of what employees can do to make the most of the perks they enjoy.
1. Set specific life goals
A big part of retirement planning and financial strategizing is to look forward. Employees must have a good idea of what they want to achieve once they’ve reached retirement age. Many may still have a vague understanding of their possible end goals but coming up with a definite destination can help them make the right adjustments in their current financial plans. What’s more, a clear goal can provide employees with a specific direction and help them avoid making financial decisions that could impact their retirement goals later on.
For an employee, it’s crucial to think about what matters most to them as they await retirement. While it’s possible that they could use their pension to finance their travels, they should also think about building investments that could help them fuel their goals even further. There must also be space for estate planning, especially if they’re keen on transferring all or part of their assets to their next of kin. In any case, seeing the bigger picture helps employees prepare for the challenges that lie ahead and find ways to increase potential returns.
2. Catch up on 401(k) contributions
Another important aspect of retirement planning is knowing how to maximize mandated retirement savings accounts. For this, a 401(k) account is more than just a privilege offered by employers. It’s a significant source of funds with tax benefits and massive growth potential leading to a large retirement payout. What’s even better is that through a 401(k) plan, employers match the contributions of their employees, essentially boosting the growth of employees’ savings accounts.
Considering the perks of having an employer that offers a 401(k) plan, employees should take the time to review the growth of their accounts by checking their account statements or logging in to their 401(k) portal through their employers. What’s more, employees should also think of catching up to their 401(k) contributions as they near the age of 50.
Made possible by the Economic Growth and Tax Relief Reconciliation Act of 2001, a catch-up contribution allows older employees to add more funds to their growing savings, thereby boosting the value of their retirement portfolios. Taking advantage of catch-up contributions is an excellent way for employees in high tax brackets to get the most out of their retirement funds.
3. Get the most out of stock options
Some companies offer their employees the opportunity to invest in stocks, giving them an extra source of funds to boost their retirement savings. Doing so would mean checking the company’s vesting schedule and seeing if the value of the company’s stock is greater than the strike price. It’s only a matter for employees to monitor the trajectory of the company’s stock performance to know when would be the most opportune time to sell.
To get the most out of such perks, employees should have a clear strategy on what to do with their stock options once they vest. In most cases, it’s a typical practice for employees to purchase their stock options at the strike price and wait long enough or until the stock’s value reaches an ideal threshold before selling. It’s also possible for them to sell a portion of their stocks and keep some until the right time comes. Either way, knowing how to exercise stock options can set employees up for further financial gains as retirement sets in.
4. Bank on health perks
The state of health insurance this year remains uncertain with talks of replacing or amending the Affordable Care Act. While not mandatory in some states, health insurance provides added incentives to employees, offering medical benefits that can be carried over toward retirement.
To make the most of these perks, employees should consider opening up a health savings account. This is also one of the effective Tax-optimization strategies for retirees wanting to save more for possible medical expenses using their pre-tax dollars. With an HSA, employees can cover qualified medical expenses that include dental and vision services.
What’s even better about an HSA is the opportunity for employees to see their medical savings grow through tax-deferred interest earnings. It’s only a matter of knowing how to fuel these funds even further. A good recommendation is to open a limited Flexible Savings Account if one’s employer offers it.
From there, employees can make recurring contributions with options to invest in select investment vehicles which may include bonds and exchange-traded funds. Plus, much like a 401(k), employees can make catch-up contributions amounting to $1,000 per year as they enter the age of 55.
5. Maximize social security benefits
Not many employees know this but they can stand to gain a lot by coming up with an effective social security strategy. In some cases, employers may provide employees with seminars and opportunities to talk to a Social Security advisor on how best to invest their Social Security benefits in time for retirement. For the most part, social security earnings can make up the bulk of an employee’s retirement fund, so it’s important to think about ways to maximize their value.
For this, employees can opt to keep contributing for 35 years at most and secure higher-paying jobs or positions to maximize their savings. They will also need to look into possible spousal benefits which could come in handy if their spouses earn more. They can also increase the value of their social security portfolios by waiting until their full retirement age, the earliest being the age of 62. It’s also important to check their tax brackets, especially after retirement. Employees who decide to re-enter the workforce after retiring are poised to see significant reductions to their social security benefits.
Endnote
Employment gives access to benefits that could help workers in any industry live fruitful and exciting lives during retirement. Understanding how to maximize these benefits is essential to making sure that they get the best perks once they hang up their boots.
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