The Ultimate Guide to Save for Retirement
Finance experts suggest that we should all be putting a significant portion of our yearly salary into a retirement savings account. However, for many people, the reality of retirement isn’t an ideal one. According to a 2019 Bankrate poll, just over half of America’s workers aren’t saving enough.
If you are like most of the survey’s respondents, you may wonder how to catch up on retirement savings. No matter how little you’re saving or how close retirement is, it’s not too late to grow a nest egg. Medicare and Social Security may not be enough, but with these facts and tips, you’ll find it a little easier to put money aside for your golden years. Read on to learn how to save for an easier, more comfortable retirement.
Retirement Planning: Why Do So Many People Fall Behind On Their Savings Goals?
When you’re trying to save for retirement, it’s important to understand the most common mistakes that can derail those goals. An essential savings tip is to not make early withdrawals from retirement accounts. In the poll referenced above, almost half of those with IRAs or other accounts took out money before they reached retirement age. While early withdrawals may not seem like a major problem, they come with fees and penalties that can have a substantial impact on your long-term savings. Be sure to consult a financial or tax advisor to determine age-based eligibility for your accounts.
Eliminate High-Interest Debts First
A great way to save for retirement is to pay off high-interest debts as quickly as possible. Rather than spending money to cover interest charges, you can put it in a retirement account. These newly allocated funds will earn their own interest, which will compound with time. Assess your debts, whether they’re from loans or credit cards, and make a budget that will allow you to pay those debts down as soon as possible. Consider starting with the highest interest debt first, and gradually focus on debts with lower interest rates.
Cut Discretionary Spending When Possible
This tip involves a bit of sacrifice in that you’ll have to make lifestyle changes and forego a few “wants” to free up funds that can be put into a retirement account. If you’re without a budget, creating one will help you monitor expenses and find areas where cuts can be made. Decreasing discretionary spending is one of the numerous ways to catch up when you fall behind on saving for retirement.
Save Money When Receiving a Bonus, Salary Increase, or Tax Refund
Putting extra funds toward retirement is another way to save. Tax refunds, salary increases, bonuses, and inheritances can all play a role. Move these windfalls directly into retirement or savings accounts, where they can earn interest immediately and be relatively safe from early withdrawals.
Increase Your Earnings
When you’re saving for retirement, one of the best things you can do is boost your earning potential. As you’re getting ready to retire, consider taking on another job or finding a side hustle.
Set Goals and Strive For Them
As in other parts of life, successful retirement savings may require you to step out of your comfort zone. Having a goal in mind may motivate you to push forward, and it may also help with accountability. The narrower a goal is, the more dedicated your effort will be. By reducing discretionary spending and saving more each month, you’ll reach your savings goals faster than expected.
Set Up an IRA
As you’re implementing the tips we’ve already provided, consider your individual retirement account (IRA) options. These accounts offer the benefit of guaranteed returns, with terms that may range from several months to a few years.
Contribute the Maximum Toward Your Retirement Accounts
Making the maximum yearly contribution to your IRA and/or a 401(k) is another crucial retirement savings tip. If you’re unsure about the process, consult a tax expert or financial advisor for information and recommendations that suit your situation.
If your employer offers matching contributions, be sure to take advantage of them by contributing enough to get the full benefit. These contributions are best thought of as ‘bonus’ money that will earn tax-free compound interest until it’s withdrawn. An individual retirement account may provide tax savings now or when withdrawals are made, depending on whether you’ve picked a Roth or traditional IRA.
Consider an IRA Catch-Up Contribution
Another crucial tip is that spouses can each contribute up to $1000 more to an IRA if they’re both over 50. It’s possible to make catch-up contributions to Roth and traditional IRAs if the IRS’ rules are followed. All contributions are to be made by the same date your tax return is due, not counting extensions. As always, if you have questions on your specific situation, it’s best to consult a tax pro or a financial advisor.
Learn About Your Retirement Benefits
When saving for retirement, be sure to check with the SSA (Social Security Administration) to learn how start dates affect retirement benefits. The longer you wait to draw benefits before reaching the age of 70, the bigger your monthly check will be. Keep this in mind when creating a budget and implementing these savings strategies.
Explore Tax Credit Opportunities
As you’re putting money into a retirement account, ask about your eligibility for a savings credit, which was previously called a retirement savings contribution credit. These credits are available to certain low- to middle-income families, and they match part of an employer-sponsored retirement plan or IRA. If you’re eligible, this tip may make a substantial impact on your retirement finances.
Take the Right Steps to Get Your Retirement Savings On Track
Learning how to save more money for retirement can be quite challenging, but it’s a crucial step toward a more secure future. While an easy retirement is a lifetime goal for most people, not everyone is prepared to achieve this objective. Once you’ve started to make changes and you’re accruing savings, you may be surprised how quickly the money adds up.
Cary Silverman is a consummate entrepreneur having sold multiple companies during his 20 years of business experience in the financial industry, but for him, it isn’t about the money. His success is rooted in his passion to focus on doing something better today than it was done yesterday. These days, he’s the CEO of Waldo General, Inc. that oversees the operation of King of Kash.