First off, if this situation applies to you then let me say… “Congratulations!”
You’re doing a great job of saving for your future, and it will be well worth it down the road.
For many, saving to your employer plan may not be enough. You may have progressed in your career enough to where you need to catch-up, or you may just be a fantastic saver and need to find other places to invest.
Below are a few ideas for those that save:
- You can always contribute to an IRA. I meet with many who know they are outside of the contribution limits for a deductible IRA or Roth IRA. However, many are not aware that they can always contribute to an IRA and just not receive a deduction. The benefit of this approach is that your contributions will not be taxed when withdrawn. A strategy here may be to contribute to your IRA to convert that money to a Roth IRA later.
- Set-up a taxable brokerage account. If you are saving for goals 5+ years out, consider setting up a brokerage account to invest for higher returns. If this is saving for the long-run, you may want to consider revisiting your portfolio asset allocation decisions to determine if a tax-efficient stock mutual fund may be a good investment.
- Get aggressive with paying down your debt! Paying down debt will save you on interest costs more so than what you will earn on short-term savings, so make getting out of debt a priority.
- Improve your emergency and short-term savings. Many that save well for the long-run still suffer like the rest of us to have cash on hand for emergencies. Make sure to have at least three months worth of expenses on hand, and consider increasing that to between six and nine months. Next, figure out what large cash needs you will have that you may have traditionally financed like the need for a car or to replace something major around the home. Start to segregate these goals and figure out a monthly amount that can be saved towards them today. Having multiple bank accounts labeled for each goal can be a great way to keep track of your savings needs and goals. SmartyPig is a bank that takes this concept of goal-based saving and allows you to see your progress toward each of any number of savings goals you may have.
If you own your own business you have other options which may include setting up other tax-efficient accounts or pension plans.
Maxing out your employer savings plan may not be the end of your options for investing for the long-run. What is best for you will depend on your personal goals, and creating a plan to meeting them.
Robert Schmansky, CFP®
Financial Advisor
Clear Financial Advisors, LLC
Royal Oak, MI
All Things Financial Planning Blog 