How To Increase Retirement Savings: 7 Simple Steps
Submitted by Holly Welles - Holly Welles is a freelance writer with a focus on finance and real estate. You can find more of her advice on her blog, The Estate Update, or keep up with her writing on Twitter.
(Contributions are guest opinions only and don’t reflect the opinion or endorsement of Money Fit by DRS, our staff, clients or other interested parties.)
You can start saving up for retirement at 18 or 40 — a retirement account benefits you at any age, although most financial advisers agree sooner is better. Many people don't consider retirement savings because of debts and money concerns, but growing your account is easier than you think. Budget wisely and save money where you can — you don't have to dump thousands into your account right away.
Taking it steady is the best way to save money without becoming overwhelmed or falling off track. Everyone needs financial guidance sometimes, and you've come to the right place for it. Keep reading to discover seven steps to enhancing your retirement savvy.
1. Have a Financial Goal
Set a goal for your finances before you implement any strategies. It's easier to plan when you have a solid idea of what you're working toward instead of a vague sum. Create benchmarks — if you plan to have $5,000 in savings before the year's end, execute the appropriate steps to accomplish this. Factor in estimates for any big retirement decisions you aim for, such as buying a new house or going on a luxury vacation.
2. Budget Your Income
Decide where to spend and save. Many people underestimate their saving needs, which can reduce your ability to take advantage of compound interest over the years to come. It’s a good idea to set a target savings amount or percentage of your income each month to break your goal into easier-to-tackle milestones.
On the other hand, some people make the mistake of saving too much and not having enough left to pay loans or credit card debts. Put away enough money to cover your retirement goal while meeting your bills and other responsibilities. Your contributions will change throughout your career depending on what you make, so don't feel like you need to stick with one amount. Adjust it whenever necessary.
The general recommendation is to save 70% of your annual income by the time you retire, but each case is different. Emergencies pop up and windfalls drop into your lap — modify your budget to accommodate these occurrences. As long as you’re ready to bounce back when you can afford to save more, you should be on the right path.
3. Save Your Pay Increases
Whenever you receive a pay raise at work, think about upping the percentage of income you save for retirement. And if you come across a windfall, consider saving a chunk of it for retirement. Lump sums of money prove tempting, and they often result in people spending their cash before they can use it for necessities.
If your income increases, you can combat lifestyle inflation by letting the extra money fill your retirement and savings accounts rather than going to fun stuff. This doesn’t mean you shouldn’t celebrate, of course — you can increase your savings percentage from 10% to 12% and still have money left over. A small change can create long-term benefits.
4. Use Catch-Up Contributions If 50 or Over
Adults 50 and older can play catch-up by going over the saving limits for their accounts. If you've recently begun contributing or didn't get to save much in your earlier years, you can do so now with leeway.
For example, anyone under 50 in 2019 has a contribution limit of $19,000 for their 401(k) accounts, while those over 50 can deposit up to $25,000. Save effectively by depositing the max amount — these funds are tax-deductible, so they lower your taxable income.
5. Match Your Employer
Many employers offer 401(k) retirement plans by matching the funds you save. Take advantage of this opportunity if your employer participates. Deposit at least the amount they require to make a match — although you can max it out if you're able. The 401(k) plan makes up part of your total compensation, so it's crucial to use it to get everything your employer owes you. Some companies do dollar-for-dollar matching, while others do partial matching.
If your employer does a dollar-for-dollar match, you'll get 100% back out of the amount you add to the retirement account. If they do a partial match, they contribute only a portion, such as 50%. Check your company's policies before you open an account.
6. Open a Roth IRA
If you're self-employed or work as an independent contractor, you likely don't have an employer-sponsored retirement plan. Open an individual retirement account instead. You can also choose this option if you intend to save more than your employer will match. Taxes have already come out of the money you contribute to a Roth IRA, meaning you don't owe any taxes on it before or during retirement.
You can open an IRA account at any age, though you may face restrictions on your contribution ability if your income surpasses $120,000. Contribution limits for 2019 are $6,000 for anyone under 50 and $7,000 if 50 or above.
7. Create Additional Income Streams
The more money you make, the more you can save. Consider taking on another job or starting a side hustle to bring in more money. The key? Do something you already enjoy — additional work will quickly begin to wear you down if it's not something you love. Sell art on online vending sites, pet sit for your neighbors or whip up baked goods and sell them to acquaintances. You have tons of creative options for earning funds, so experiment with it.
Small Steps to a Better Retirement
Walk into the process with confidence, and you'll succeed. Many people stress over their finances because they don't have a clear plan, but you don't have to join them. Small steps equal big rewards, resulting in retirement with no worries.