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May 28, 2022, 1:33 p.m. EDT

Saving enough money for retirement is a big job, but you don’t have to go it alone

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By Pam Krueger

If you’re like millions of Americans who have retired or are approaching retirement, you may be losing sleep over your financial security. The cost of everything from gas to groceries is rising and with the Federal Reserve raising interest rates to stifle inflation, bond prices have plummeted and the stock market is experiencing wild gyrations.

In the midst of all this uncertainty, Congress still believes the best way to solve America’s retirement savings crisis is to revamp 2020’s Securing a Strong Retirement (SECURE) Act. The SECURE Act was originally designed to address an uncomfortable fact. While 68% of workers have access to a retirement plan at work, just 51% participate, according to the U.S. Department of Labor .  

The new update — known as “SECURE Act 2.0” — expands some of its signature benefits for those who are saving for retirement — or want to — and for those who are already tapping their 401(k) and IRA nest eggs or will do so soon.  

SECURE Act 2.0 will require most employers to automatically enroll full-time employees in their retirement plans and automatically increase their contributions every year. It will also enable more part-time workers to participate in their employer’s plans.

But if you’re already saving for retirement at work, these changes aren’t particularly revolutionary. So, how will retire savers benefit? If you’re between the ages of 62 to 64, you’ll be able to add up to $10,000 in annual  “catch-up” contributions. Outside this age range, your catch-up provision will cap at $6,500 in 2022.

The catch? Starting in 2023 all catch-up contributions to 401(k) plans will be treated as after-tax Roth contributions. That means these contributions won’t lower your taxable income. The good news is that you’ll never have to pay taxes when you withdraw these Roth contributions.

The other “big benefit” of SECURE Act 2.0? Beginning this year, you won’t need to start taking Required Minimum Distributions from your 401(k) plans and traditional IRAs until age 73. (The original SECURE Act raised the age from 70 to 72). In 2029, this age rises to 74. In 2032 it rises to 75.

As nice as these benefits are, they aren’t a panacea for solving America’s retirement crisis. The hard reality is that neither the government nor your employer are in the business of ensuring that you’ll have enough money to retire on. That’s why you’ll have to take matters into your own hands.

It’s your job to determine how much money you’ll need to live on during retirement, estimate where that money will come from, and how much you’ll need to withdraw from your retirement accounts each year.

And, if it looks like your retirement savings might be depleted sooner than you’d like, here’s what you may need to do about it:

1. Calculate your retirement expenses : There’s a common cliché that you’ll need 60% to 80% of your current income to meet your expenses during retirement.

Don’t believe this. When you retire you may want to buy a second home. Or travel a lot. Don’t forget healthcare expenses — one year of long-term care could cost $100,000 or more.

So, you’re better off overestimating than underestimating how much money you’ll need. There are many free and low-cost tools that can help you with this. For example, Bloom can help you make better decisions with your retirement plans; You Need A Budget helps you prioritize everyday expenses and become more purposeful about your spending.  

2. Estimating your retirement income sources : Next, you need to figure out whether all the income you receive during retirement will pay for your desired retirement expenses or fall short.

Some of this will come from Social Security. How much? Find out by establishing your own online Social Security Administration (SSA) account . SSA pulls data from tax returns to tell you how much you’d receive every month if you retired before or after your full retirement age (age 66 or 67 for most people).

If you don’t want to work during retirement, the rest of your retirement income will either have to come from a pension (if you’re one of the lucky few who has one) and your bank, 401(k), IRA and taxable investment accounts.

3. How much of your nest egg will you have to spend each year? Estimate how much money you’ll need to withdraw from your nest egg each year, both in terms of dollar amounts and as a percentage of your savings. Assuming that investments will increase the total value of your retirement assets by around 5% per year and that you always withdraw the same amount every year, how long will it take for your savings to be fully depleted? If less than 20 years, you might have to make some tough choices, either now or later.

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