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Saving for multiple goals—including retirement

Key takeaways

  • Taking a full 401(k) match and funding an emergency account are priorities.
  • Consider the "nonnegotiables" in your dream retirement lifestyle.
  • Saving in an HSA now is a way to plan for health care costs in the future.

Kim Svoboda enthusiastically deems herself an overachiever.

The corporate initiatives director at a national nonprofit says she loves to work hard and play hard. That drive has paid off financially. She makes a good salary in her full-time job and earns about $30,000 extra annually by consulting on the side.

Her goal-setting also spills over to retirement planning. "My dream is to reach $1 million in my 401(k) by the time I retire," says Svoboda, age 49. "I already have over $600,000."

That benchmark was inspired by her father, who saved $1 million for his and Svoboda's mom's retirement while working as a field engineer for Kodak.

"I've always looked to my dad for financial advice," Svoboda says. "He's always been able to manage money really well."

She also has sights on other financial achievements. One of the most important: saving for a down payment on a home in Wisconsin.

Svoboda and her long-time partner Austin Mahoney recently moved to Cape Coral, Florida, after spending nearly 2 decades in New York City. While Florida will remain their primary residence, she'd like to spend more time in Wisconsin, where her parents live.

"I have flexibility with my job. I can work remotely anytime, anywhere," she says. "When I took this role a year ago, I knew I wanted to be in Wisconsin in the summer months." Mahoney, who is retired from the New York City Police Department, and Svoboda have a solid 20-year relationship and a well-thought-out financial partnership. For instance, he paid for the condo in Florida, and she helps cover expenses while saving for their Wisconsin home.

Svoboda knows Mahoney is there to support her if needed, but she also puts a big premium on self-sufficiency. "It's important for me to be a financially independent woman," she says. "It's a good feeling to know I've got my own back." As she looks to achieve her upcoming goals, Svoboda met with Ryan Seward, a Fidelity Investments Branch Leader in Dunwoody, Georgia. She is not a client with Fidelity but Seward outlined how Fidelity might lay out a plan to help her reach her goals.

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Striving for that retirement number

Seward was optimistic that Svoboda might one day reach her $1 million goal. But time frame matters when it comes to saving and investing, so he probed more, asking Svoboda about her planned retirement age. She wasn't sure, as there were competing factors to consider. For instance, she enjoys her career but wants to spend more time with her now-retired partner. On top of that, she can't envision slowing down. "I'm that person who's probably always going to be a workaholic," she said.

Even without an anticipated retirement age, she can help set herself up for success by considering what lifestyle she'd like later in life. "A lot of people think of expenses in retirement as essential, such as food, housing, your car, and discretionary," Seward said. "But I like to think about it differently. What will be your non-negotiable expenses?" These aren't essential but are more important than discretionary. For example, taking an annual vacation or hosting a weekly family gathering.

Once she has a better idea of her nonnegotiables, and their cost, Svoboda might need to bolster her retirement sayings goal beyond $1 million. Seward added that the timing of their financial discussion was ideal, as "your late 40s and early 50s is a wonderful time to start seriously thinking about this because you have time to make adjustments."

Saving for multiple goals

Svoboda wants to put away money for retirement and, at the same time, save up for the home in Wisconsin. The first order of business, Seward said, is to capitalize on her company's 401(k) match. That's like free money. The next thing to consider would be saving 3 to 6 months of cash in an emergency fund. Svoboda had both those items in place. With that in mind, Seward suggested that it could be a good idea to save for the Wisconsin home aggressively. With mortgage rates significantly higher than in recent years, the more money she can use for a down payment, the better.

Handling turbulent markets

Svoboda felt comfortable with her saving skills, but she was quick to admit that she needed some guidance when it came to investing. "The stock market is not my forte," she said.

She, along with many of Seward's clients, was concerned by the bumpy stock market of late. "We've been talking with clients about the importance of having a long-term strategy, making sure you're invested appropriately based on your risk tolerance, and having good diversification," Seward says. "In addition, make sure your accounts are rebalanced over time." Getting objective input from a financial professional can be helpful. "When we insert emotion into the financial planning process, it typically leads to an outcome that's not as successful," Seward said. A financial planner can help remove some of that emotion-based decision-making.

Read Viewpoints on How to start investing and 3 keys to choosing investments

Deciding how to best use a Roth 401(k) and a traditional 401(k)

Svoboda needed help fully capitalizing on the Roth 401(k) and traditional 401(k) plans offered by her employer. While traditional 401(k) contributions are made with pre-tax dollars, a Roth 401(k) is funded with post-tax contributions, so earnings can grow tax-free.1

Before making any decisions, it's important to talk with a tax professional to see how contributions can affect your tax bracket. When you're in your high-income years, as Svoboda is, Roth contributions could potentially be less desirable, as they are not tax-deductible. In the case of a workplace savings plan, Roth contributions won't reduce taxable income for the year as traditional contributions could. "You certainly want to make sure you understand the tax ramifications," Seward said.

Read Viewpoints on Traditional or Roth account? 2 tips to help you choose

Planning for future health care expenses

Health care expenses can siphon away a large part of a retiree's budget. The first line of defense is to plan ahead. "A health savings account should be considered as an account in which to save and invest money for health care expenses now and in the future," Seward said. "That's because the HSA has triple tax benefits. There's no upfront income tax. The money that goes in it has the potential to grow tax-free and comes out tax-free when used for qualified medical expenses."2 Plus, once you turn 65, you can use money in the account for nonqualified medical expenses without paying any penalties. Withdrawals would be taxed as ordinary income, like a traditional IRA or 401(k). (If you are under age 65, you pay a 20% penalty on nonmedical withdrawals, and you pay the tax in addition to the penalty.)

Svoboda already has an HSA and she's happy with it.

Make sure the HSA funds are properly invested for your goals, Seward stressed. And a smart strategy for those who have enough money coming in is not to use an HSA for current health care expenses. Instead, pay out of pocket now. Then, in retirement, use the funds to pay for qualified medical expenses.

Read Viewpoints on 5 ways HSAs can help with your retirement

Planning can help put things in perspective

Whether you're just starting out or have already saved a significant sum for retirement, speaking with a financial professional can help put your goals in perspective. Getting straight answers about confusing topics or new ideas for tackling money issues can provide more than just peace of mind—you may get a clear path toward your goals and a new way of thinking about things.

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This information is intended to be educational and is not tailored to the investment needs of any specific investor.

1. A distribution from a Roth 401(k)/403(b) is tax-free and penalty-free, provided the five-year aging requirement has been satisfied and one of the following conditions is met: age 59½, disability, or death. A qualified distribution from a Roth IRA is tax-free and penalty-free. To be considered a qualified distribution, the 5-year aging requirement has to be satisfied and you must be age 59½ or older or meet one of several exemptions (disability, qualified first-time home purchase, or death among them). Please note that the 5-year aging rule for Roth 401(k)/403(b)s is independent from the 5-year aging rule for Roth IRAs. 2.

With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation.

Recently enacted legislation made a number of changes to the rules regarding defined contribution, defined benefit, and/or individual retirement plans and 529 plans. Information herein may refer to or be based on certain rules in effect prior to this legislation and current rules may differ. As always, before making any decisions about your retirement planning or withdrawals, you should consult with your personal tax advisor.

Investing involves risk, including risk of loss.

Past performance is no guarantee of future results.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

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