- Always keep three to six months of emergency cash on hand, pay debts and credit cards in full each month and contribute as much as you can to your company’s retirement plan to optimize the employer match.
- The order of savings is unique for each person’s situation. That’s why you need a comprehensive plan that takes into account your tax situation, years to retirement, life expectancy and major upcoming expenses.
- Balancing the timing of taxable and tax-free withdrawals has a significant impact on the longevity of your savings and ensures you keep more of your hard earned dollars.
Many investors save for their golden years through a company retirement plan. That’s great. But, they are often unsure about where to save and invest additional money they may have on hand for both day-to-day life and their retirement years. Here are some of the most frequently asked questions we receive from clients:
- “How much should we have set aside in our emergency savings?”
- “Should we use a taxable investment account for additional saving?”
- “When do non-deductible IRA contributions and Roth conversions make sense?”
- “Should we pay off our mortgage early?”
- “Does it make sense to take advantage of my employer’s Stock Purchase Program or Deferred Compensation Program?”
- “How much can I contribute to my Health Savings Account and will I lose it if I don’t use it?”
No two clients have the same needs and circumstance, but the basics always apply:
- Always maintain 3 to 6 months of emergency cash on hand because “life happens.”
- Always make the required payments on your debts and pay off your credit cards in full each month.
- Contribute as much as you can to your employer’s retirement plan, ensuring that you receive the maximum matching amount.
After following the three golden rules above, the order of savings becomes unique for your situation. That’s just one of the many reasons that a comprehensive financial plan is essential to developing your best course of action. At Soundmark, we take the following into consideration when determining where each client’s additional savings should be allocated:
- The various types of retirement and unique accounts available to you such as an employer’s retirement plan, IRAs and taxable accounts, Health Savings Accounts, Deferred Compensation and Stock Purchase Programs.
- The amount of excess savings available and frequency of savable dollars-annual bonus, stock vesting, etc.
- The number of years until retirement and your life expectancy.
- The current tax situation.
- Upcoming large expenses such as a wedding, new cars, major vacations, tax liabilities, etc.
Your savings withdrawal plan is just as unique. Balancing the timing of taxable and tax-free withdrawals can have a significant impact on the longevity of your savings and ensure that you keep more of your hard earned dollars.
If you or someone close to you has questions about the various types of savings vehicles and strategies to use, contact Soundmark Wealth and speak with an independent advisor today. We offer a complimentary initial consultation through our Second Opinion offering.
James Nevers, CFP® is an Associate Advisor at Soundmark Wealth Management, LLC. James works closely with physicians, business owners, Directors and Executives at Amazon, Microsoft, and Boeing, and other high-net-worth individuals to help them define their financial goals and implement an ongoing financial planning process.