Key Steps to Plan for Retirement in Vermont

Key Steps to Plan for Retirement in VT

Do you have a retirement strategy? Whether you’re just starting out in your career or are nearing retirement age, it’s never too early to start saving and planning for retirement. In this article we’ll cover five key steps to plan (or revamp your plan) for retirement in Vermont, named the 16th best state to retire in 2021.


Save for retirement in a tax-advantaged account.

Retirement accounts, like 401(k)s and IRAs, enable your investments to grow tax-free or tax-deferred depending on your account preference and retirement strategy.

Unlike traditional brokerage/investment accounts, in which any capital gains are taxed, retirement accounts like 401(k)s and IRAs enable your investments to grow tax-free or tax-deferred. Here’s what you need to know about tax-advantaged retirement accounts:


401(k) and 403(b) plans

Both of these accounts are tax-advantaged retirement plans offered by employers. The main difference is that 401(k)s are offered by for-profit companies and 403(b)s are offered by nonprofits and government entities like school districts. Here are the main similarities to know:

  • You make pre-tax contributions from your salary or wages.
  • Employers may also contribute to your account, either on a one-time annual basis or by matching a percentage of your contributions.
  • Plan earnings grow on a tax-deferred basis. Only when you begin to take distributions in retirement do you have to pay taxes on your withdrawals.
  • is the current annual limit on 401k contributions. If you are 50+ you can contribute an additional $6,500 each year for a total of $26,000.
  • 59½ is the minimum age at which you can take distributions from your 401(k) without facing an early withdrawal penalty. If you haven’t started minimum distributions by age 72, you will have to start then.

You may also consider a Roth 401(k), which has its differences from a Traditional 401(k). Your contributions to a Traditional 401(k) are considered pre-tax dollars, allowing you to save on income taxes at the time of investment. When it comes time to withdraw your funds, your tax rate would then be applied to the amount being withdrawn. A Roth 401(k) works the other way around. Your contributions to a Roth 401(k) are made after they are taxed, so your contributions and earnings can then be withdrawn tax-free at the age of 59 and a half if you have held your account for at least five years. Also, unlike a Roth IRA, there is no income limit on a Roth 401(k).

One of the most important things you can do with your 401(k) or 403(b) plan is to contribute at least enough to get your full employer match, if offered. Otherwise you are essentially leaving “free money” on the table. Also pay attention to when that employer contribution vests, which means the money is yours to keep even if you leave your job. Some plans are fully vested from day one; with others, you may be partially vested every 1-2 years, until you reach full vestment.


Individual Retirement Accounts (IRAs)

Don’t have an employer-sponsored retirement account? Not to worry—there are retirement account options beyond the 401(k). Anyone can open a Traditional or Roth IRA through a financial services provider like Union Bank. Even if you currently have an employer-sponsored retirement account, you may want to consider an additional option to save your money. Here’s what you need to know:

  • Traditional IRA: A tax-deferred retirement account, which allows the money in your IRA to grow faster. Dividends, interest, and capital gains compound year-after-year and you only pay taxes on income when you begin to withdrawal funds in retirement.
  • Roth IRA: Unlike a traditional IRA, contributions to a Roth IRA are made after-tax. So while contributions are not tax-deductible when you make them, you’ll enjoy tax-free distributions in retirement of both your initial contribution and all the subsequent earnings.

For both Traditional and Roth IRAs, the annual contribution limit is $6,000. Accountholders age 50 and up can contribute an extra $1,000 per year for a total of $7,000. For a Traditional IRA there are income limitations to consider for tax deduction purposes, so this could be a deciding factor when determining the account that is the best fit for you.


Simplified Employee Pension (SEP)

A good option for small business owners, and the self-employed, who would like to contribute more than the annual limit for IRAs is a Simplified Employee Pension (SEP). With a SEP, you can contribute up to 25% of your compensation or $58,000 (as the maximum limit).


How To Withdraw Funds in Retirement

You spend your working years dutifully contributing to your retirement account(s). So, what happens when it’s actually time to start taking money out? We can help you rollover multiple retirement accounts into one. This is especially helpful when you have multiple employer-sponsored plans from your past employers. Our retirement planning specialists can also help you set up a withdrawal schedule that helps to preserve the principal balance of your account while also providing sufficient income for living expenses.


Evaluate your current assets and income

Based on your current asset balance and the age at which you plan to retire, are you on track to have enough to live off of during retirement?

Once you’ve got your retirement savings on autopilot, it’s time to take stock of the financial accounts and physical assets you plan to use for living expenses in retirement.

  • Savings account(s)
  • Retirement account(s)
  • Brokerage/investment account(s)
  • Projected social security income (check your full retirement age and estimated monthly income here)
  • Expected Pension (if applicable), including expected cost of living adjustments

List your assets and their current value/balance. Based on where you are right now, and the age at which you plan to retire, are you on track to have enough to live off of in retirement? If you’re not sure, our retirement planners can help.


Cut back on spending and high-risk investments

You can reduce risk while continuing to grow your savings by investing in bonds, proven ETFs, and dividend-yielding investments.

As you approach retirement, think carefully about the monthly expenses you’ll want or need to keep after leaving your job. What can you cut? Many people underestimate the amount of monthly or annual income they’ll need in retirement. You can help yourself in advance by understanding your current budget and reducing or eliminating future discretionary spending.

As for your investment portfolio, it’s time to move into lower risk options. Higher risk investments can be useful when you are young and looking to build wealth faster or to catch up after a late start. However, rebalancing your investments into asset allocation that fits your time horizon and risk tolerance can help increase the likelihood that your wealth will last through retirement.

Luckily, lower risk doesn’t necessarily mean no growth. You can reduce risk while continuing to grow your savings by investing in bonds, proven exchange traded funds (commonly referred to as ), and dividend-yielding investments. Whatever stage of life you’re in, diversification is always a good strategy to minimize risk.


Eliminate debt & improve your financial well-being

It’s one thing to carry debt in your younger years when you have both the income and time to pay it off. But you don’t want to go into retirement with debt, not even a mortgage, if you can help it. During your pre-retirement years, work on eliminating your debt and getting into a stronger financial position as a result. If you’re very close to retirement age now, you may want to use savings to pay off the rest of your mortgage or any other debt you’re carrying. And once you’re debt free, stay there. It can be tempting to co-sign a grandchild’s student loan or to take on a home equity loan to help an adult child buy their own house. But staying financially independent is really the best thing you can do for yourself and your loved ones.


Prioritize your own physical health, not just financial health

Be sure to consider healthcare costs when planning for retirement. Investing in your own health by taking care of your body can pay off in the long run.

Healthcare costs can be a major expense in retirement, yet they are often overlooked when planning for retirement and anticipating how much money you’ll need. While some diseases and medical conditions can’t be prevented, do what you can now to take care of your body by eating well, exercising regularly, and getting adequate sleep.  If your employer offers a fitness stipend and/or access to nutritional counseling, take advantage of these benefits and use them to improve your physical health.


Resources for retiring in Vermont

Tools to help you plan for retirement in Vermont

Are you planning to move to or stay in Vermont for retirement? The Office of the State Treasurer has links to many great informational resources on its Saving For Retirement page. You’ll also want to talk to your tax professional about state income taxes on retirement income. The Department of Taxes has a helpful page for seniors and retirees.


Where to retire

For ideas on purchasing a second home or retiring to a resort community, check out our recent article on “Buying a Second Home in Vermont.”


Do I need a financial advisor for retirement?

Working with a financial advisor or retirement planner comes

Planning for retirement can feel overwhelming. Taking on the burden alone can easily become no-one does it. And if you make a mistake, the consequences could negatively impact your future retirement. Working with a financial advisor or retirement planner comes with many benefits, including investment management. Instead of trying to manage your portfolio yourself, let our asset managers put their expertise to work for you with an active approach to making and monitoring your investments. Our team can also help you create a comprehensive financial plan to chart your path to retirement and consult before making big decisions or changes. Let go of the stress and confusion around planning your own retirement and gain peace of mind when you hand the task over to a professional.


Get help with retirement planning!

Union Bank has been helping individuals, families, and businesses manage and invest their assets for over a century. With value-based fees and a range of options, we make investing accessible to everyone. Trust your future with one of New England’s leading community banks that has a long record of investing in the success of northern Vermont and northern New Hampshire. Find the personalized service and approach you’re looking for: contact our retirement planning specialists today or stop by any of our local branch offices to discuss your retirement goals.


Non-Deposit Insurance Product (NDIP) disclosure rule:

*Unlike traditional bank deposits, non-deposit investments are not insured by the FDIC; are not deposits or other obligations of Union Bank and are not guaranteed by Union Bank; and, are subject to investment risks, including possible loss of the principal invested.