You may be a few years or a decades away from retirement, but it’s never too soon or too late to ramp up your savings for your life as a retiree. And one of the best ways to do so is to increase your contributions to your 403b—whenever your salary goes up.
Why is it so important to put in as much as you can to your 403b? Let’s review the key benefits of this plan:
- Tax advantages – By contributing pretax dollars to your 403b you can lower your taxable income, and your money can grow on a tax-deferred basis.
- Ease of contributing – You contribute to your 403b through payroll deduction – the easiest way to save.
So, given the various benefits of a 403b plan, how much should you contribute each year? You'll want to balance how much you contribute with other goals you may have, like building an emergency fund or paying down debt. We can certainly help you with this. And of course, there are limits: in 2023, you can put in up to $22,500 to your 403b, or $30,000 if you’re 50 or older.
Strategies for boosting your 403b savings
Work toward saving 10% to 15% (or more) of your income – Everyone's needs are different, but a rule of thumb is to save 10% to 15% of your income toward retirement. If you want a more personalize savings goal, a financial advisor can help determine how much you need to save to achieve the retirement lifestyle you've envisioned. If you're not saving enough today, consider these strategies:
- See if you can increase your savings by 1% of your salary each year.
- Reserve a certain dollar amount or percent of future pay raises, bonuses or financial windfalls to go toward your retirement savings. For instance, promise half of your raise to go to increased retirement contributions.
Beyond your 403b
While your 403b can and should be a key part of your retirement savings, it likely won’t be the only component. To help further improve your financial situation during your retirement years, you may also want to contribute to other accounts, including these:
- IRA: Even with your 403b, you’re probably also eligible to contribute to a traditional or Roth IRA. For the 2023 tax year, you can put in up to $6,500 to your IRA, or $7,500 if you’re 50 or older. A traditional IRA is typically funded with pretax dollars, so your contributions can lower your taxable income, and your earnings can grow tax deferred. However, the amount of contributions that you can deduct from income can be reduced, and eventually eliminated, based on your ability to access an employer retirement plan and your income level. A Roth IRA is funded with after-tax dollars, but earnings and withdrawals are generally tax free. However, the amount you can contribute to a Roth IRA is reduced, and eventually eliminated, based on your income level. To verify your eligibility, you’ll want to consult with your tax advisor.
- Nonqualified Annuity: If you’ve “maxed out” on your 403b and other retirement accounts, and you still have funds to invest, you may want to consider a nonqualified annuity, which can provide guaranteed fixed income during retirement. In fact, you can structure an annuity to provide you with an income stream you can’t outlive. We can help you determine if an annuity is appropriate.
Ramp up your retirement savings!
Increasing your 403b contributions whenever your salary goes up can help you make progress in pursuit of your retirement goals. And it may also pay off to contribute to the other accounts and retirement vehicles available to you. We can review your situation and recommend the right combination of moves for your situation.
Boost your retirement account by increasing your contributions today.
Give us a call today!