7 Tips to Boost Your Retirement Savings
Time flies, and it seems to pick up the pace every year. Ask a retiree if this felt true during their career and if retirement age crept up on them. They will likely nod their head. Many will also tell you that it arrived too quickly and that they wished they had more time to build their retirement nest egg. To adequately save for retirement, many financial advisors recommend investing 15% of your gross income in your retirement savings.
If you’re still saving for your retirement, or you need to make up for lost time, here are seven tips to help you boost your retirement savings.
1. Start Now.
Compound interest has been called “the eighth wonder of the world” for a reason. Every dollar you put away today will grow exponentially, and the more time you give it, the larger it will grow.
For example, let’s say Gina (age 20) inherited $1,000 and invested it today. If she continued contributing $1,000 per year, she would build up a savings of almost $17,000 after 10 years. This assumes an 11 percent growth rate, which is reasonable based on long-term average equity returns. After 40 years investing at the same rate of $1,000 per year, she would have over $240,000 in retirement.
Consistency is the key to creating wealth. It’s great that Gina invested the $1,000, but what if she increased her contribution to keep pace with inflation? If she sets aside $1,000 every year beginning at age 20, invests it in an indexed mutual fund mirroring the S&P 500’s historical performance over the past 50 years, and increases that annual savings by 3% each year to keep up with inflation, her account would be worth nearly $1.9 million in 48 years.
If you don’t want to wait 48 years to amass that kind of wealth, you could start setting aside $1,000 per month today, and with an 8% rate of return you’ll become a millionaire in 25 years.
If you’re not putting money aside for retirement, start today. And once you start, establish a plan to set aside an extra 2% of your income every year. You’ll be pleasantly surprised how much of a difference that will make come retirement time. Want to be even more pleased? Bump that increase to 4%, or even more.
2. Contribute to Your 401(k) and Meet Your Employer’s Match.
One of the greatest retirement tools is the 401(k) retirement plan, or a 403(b) in the non-profit sector and 457(b) in government. These plans allow you to contribute a portion of your paycheck into a retirement account before taxes, reducing your overall taxable income, and your money grows tax-deferred until you withdraw it. Many employers also offer to match your contribution up to a certain percentage.
For example, your employer may offer to match your contribution up to 3% of your salary. Or perhaps they provide a match for 50% of your contributions up to 5% of your salary. In this case, if you earn $50,000 a year and contribute $2,500 to your retirement plan, your employer would contribute another $1,250. This is free money: Don’t leave it on the table.
If your employer doesn’t offer a retirement plan, consider opening a traditional or Roth IRA which also have tax advantages. Texell offers these accounts, and you can learn more at Texell.org/certificates-and-iras.
3. Take Advantage of Catch-Up Contributions If You’re 50+.
Tax-favored retirement plans like 401(k)s and IRAs have a limit on how much you can contribute every year. Once you turn 50, you’re eligible to exceed those limits with catch-up contributions. The contribution limit for IRAs and Roth IRAs is $6,000 in 2022, and the catch-up contribution is $1,000. So, if you’re over 50, you can contribute $7,000 to your IRA.
The annual contribution limit for 401(k)s and other workplace retirement plans rose to $20,500 in 2022. The catch-up contribution amount is currently $6,500. For those over 50, your total contribution could be $27,000.
If you haven’t been able to save as much as you would have liked for retirement over the years, boost your savings by contributing as much as you can. And you don’t have to wait for your 50th birthday — you can take advantage of catch-up contributions starting any time in the year you will turn 50.
4. Automate Your Savings.
You’ve probably heard a financial advisor say, “Pay yourself first.” That’s sound advice.
An excellent way to boost your retirement savings is to direct deposit a portion into your savings account before you even see it. In most payroll systems, you can set up direct deposits to more than one account.
If you don’t have a direct deposit, you can still automate your savings. Much like setting up recurring payments for bills every month, you can schedule a recurring transfer into your account dedicated to savings.
This is an easy way to set a little extra aside for retirement each time you get paid. If you have a spouse who also works, have them do it as well. Having these funds set aside automatically will allow you to reduce the risk of missing savings contributions, which is easy to do when left to a manual and voluntary process.
5. Make and Use a Monthly Budget.
Have you ever looked at your checkbook at the end of the month and wondered where all your money went? You can avoid this by establishing and sticking to a monthly budget. That way, you’ll know where every dollar is going before spending it to ensure you’re not overspending in any given area.
Many people think having a budget is restrictive and punitive; it isn’t. A healthy budget includes things you need, things you enjoy, and savings for the future. Entertainment should be part of your budget, too.
6. Consider Delaying Social Security as You Get Closer to Retirement.
You can start receiving Social Security payments when you turn 62, but every year you delay collecting social security before age 70 substantially increases your future benefit. Not only will this add up quickly and make your retirement more comfortable, but it can also increase future survivor benefits for your spouse.
7. Have a Plan.
Hoping you have enough money put aside for retirement likely means that you will fall short. Having a plan will give you a road map to get where you want to go when you retire and the peace of mind that comes with it. Of course, you can always amend your plan as you go along, but it’s best to have a clear picture of how much you need to retire comfortably and what you must do to meet your savings goal. You’ll find that having a clear-cut plan will increase your commitment level and boost your retirement savings.
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