How to save for retirement

Do you know how much money you will need to save for retirement? Experts now suggest you have enough to support withdrawing 4% of your savings per year - or about 25x your projected annual spending when you hit retirement. According to a 2021 Bankrate survey, more than half of Americans are behind on retirement savings. 16% aren't sure if they are on track or not. If either of these are you, you're not alone.

How much money will you need to retire?

You can use the retirement calculator in Xiggit to understand how much you need to save for retirement. To gauge whether you are saving enough, experts recommend certain levels of retirement savings as you age:

• At age 30, you should have at least your annual salary saved.
• By the time you turn 40, you should have 3x of your salary saved.
• At age 50, you should have six times your salary saved.
• By the time you reach age 60, you'll want to have 8x your salary saved, and it should reach 10x your salary by the time you reach age 67.

What is the best way to save for retirement?

A couple of popular retirement options are available: 401(k), Traditional IRA, and Roth IRA. Xiggit offers both the Traditional IRA and the Roth IRA, along with a SIMPLE IRA, which has some features of the 401(k) available (like matching). Let's look at the differences and how you might use them to stay on top of your retirement savings.

Traditional IRA

A Traditional IRA is an account to which you can contribute pre-tax (part of your gross income) or after-tax (part of your net income) dollars. Your contributions may be tax deductible, depending on your situation. You must have earned income in order to contribute to a Traditional IRA. Your contributions may be tax deductible if your modified adjusted gross income is $83,000 in 2022 (depending on your filing status and whether a plan at work covers you).

You can contribute up to $6500 per year ($7500 if you are 50 or older) to your Traditional IRA. You can begin withdrawing from your Traditional IRA when you are 59½. Taking withdrawals early (before 59½) will typically result in a 10% tax penalty.

Roth IRA

A Roth IRA is a tax-advantaged retirement account where you can contribute after-tax dollars. The main benefit is that your contributions and earnings on those contributions can grow tax-free. Like with the Traditional IRA, you must have earned income in order to contribute to a Roth IRA. However, you can only contribute to a Roth IRA if your modified adjusted gross income is less than $153,000 for individuals or $228,000 for married filers.

You can contribute up to $6500 annually ($7500 if you are 50 or older) to your Roth IRA. Unlike a Traditional IRA, contributions can be withdrawn tax-free, but earnings may be taxed and subject to a 10% tax penalty.

SIMPLE IRA

Like a 401(k), a SIMPLE IRA is meant to be opened by a small business owner on behalf of its employees (including the owner). Contributions to a SIMPLE IRA are pre-tax, which means you can't deduct them from your taxes. However, like a 401(k), employers can contribute a fixed amount of 2% of an employee's income or match up to 3% to a SIMPLE IRA.

With a SIMPLE IRA, you can contribute up to $15,500 annually (or up to $19,000 if you are 50 or older).

How do the maximum amounts compare?

The maximum individual annual contribution to a 401(k) is $22,500 (or $30,000 if you are 50 or older). If you combine a SIMPLE IRA and a Roth IRA, your annual contribution limit is $22,000 (or $26,500 if you are 50 or older) - comparable to the 401(k) limits.

Where to start when saving for retirement

With several options in your Xiggit account at your disposal, let's take a look at where to start:

1. Take advantage of any SIMPLE IRA match you may get. For example, if your employer contributes 1% to your SIMPLE IRA, you'll want to ensure you also contribute 1% of your income.
2. Max out your IRAs. You should contribute the maximum amount to your Traditional and Roth IRAs if your income allows. Xiggit will help calculate the amounts for you.
3. Max out your SIMPLE IRA. If you've maxed out your Traditional and Roth IRA and can save more, you can increase your contributions in your SIMPLE IRA.

By following this order, you can ensure you receive a return from your employer match while taking advantage of the other features of the Traditional and Roth IRAs.

How can Xiggit help?

By offering Traditional, Roth, and SIMPLE IRAs, Xiggit can offer you options to contribute as much to your retirement as a traditional 401(k) without all the hassle and cost associated with a 401(k). You can get started right from our app if you are an individual. If you are an employer, talk to us today to see how we can help you save for retirement.