Set up a secure retirement


Money Management

Approximately 10,000 baby boomers will turn 65 every day until around 2030. If you’re part of that group, or if you’re planning ahead for a comfortable retirement, the Minnesota Society of Certified Public Accountants offers this advice for securing your financial future.

Fund your 401(k)

Sign up for your company-sponsored retirement plan and watch as automatic payments deducted from your paycheck add up to a hefty nest egg over the months and years. Try to donate at least as much as required to qualify for the matching donation from your employer, if one exists. That employer match is like an added bonus, and along with your own contributions it will grow over time as it earns dividends and interest. Remember, too, that your contribution is excluded from your taxable income, which helps lower your tax bite.

If your company doesn’t have a 401(k), consider setting up your own tax-advantaged retirement account, such as a traditional IRA or Roth IRA. With a traditional IRA, you can deduct your contribution from your taxable income, but distributions are taxable. For a Roth IRA, your contribution is not tax deductible, but qualified distributions are not taxable.

Don’t raid your nest egg

This is particularly tempting when you switch jobs and have access to money you may have accumulated in a 401(k) or other company-sponsored retirement vehicle. Your options typically include leaving the money in your old employer’s plan, rolling it into an IRA or into your new employer’s program, or receiving a check from the old plan.

There are several good reasons to resist simply asking for that check and spending it. First, your old employer will withhold 20 percent of the money for income taxes, and you may end up owing more in taxes depending on your bracket. If your service with the company ends before you turn 55, you’ll also face a 10 percent early-withdrawal penalty, which means one-third of your money is gone before you even cash the check.

Finally, since the money was never in your budget in the first place, it’s better to leave it in a tax-advantaged retirement account and reap the benefits later.

Set up an emergency reserve

People often dip into their retirement or other long-term savings during an unexpected financial setback. To avoid doing so, it’s a good idea to create a special savings account that’s dedicated to emergency spending when you need it. Even a few dollars a month can add up to a substantial amount when your car needs repairs or you face unexpected medical bills.

Delay Social Security if possible

Tapping into Social Security as soon as possible may sound like a great idea, but remember that you won’t qualify for your entire Social Security retirement benefit until you hit full retirement age, based on the year you were born. If you start receiving payments before that age, they will be less than you would have gotten if you’d waited.

If you postpone retirement until age 70, your benefits will rise even more. Is it better to receive lower payments over a longer period or hold out a few years for higher benefits? That’s a complicated decision that will depend on many issues, such as your health, financial situation and other considerations.

— Information and resources from the Minnesota Certified Public Accountants organization are available to the public at, including tax and financial planning information for individuals and small businesses.

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