10 Easy Ways To Save More For Your Retirement
One of the most important financial moves Greeneville, Tennessee residents can make is to save for their retirement. You don’t have to save a lot to start building a retirement nest egg, especially when you’re young. A 25-year-old who starts contributing 10-17% of their income should be on track for a financially secure retirement at age 65.
But what if your cash seems too tight to save for retirement? Or what if you’re at the age when you should save more but can’t see a way to do so? Never fear. Here are 10 easy ways to boost your retirement nest egg!
#1 Use windfall profits
One tried-and-true method is to fund your retirement savings from windfall cash. Windfalls are any sum out of the common run of your usual earnings. Bonus money, inheritances, lottery winnings — even COVID-19 stimulus checks — all fall into this category, and can all power your retirement savings for the year.
#2 Hike current savings by just a small amount
When it comes to retirement, the adage “large oaks from little acorns grow” is totally true. A steady retirement plan doesn’t need to be huge to work. Think in terms of small hikes to your retirement. Think in terms of 10 percent more, for example. If you’re currently saving $75 per month, that’s just $7.50 more on top of it. Can you swing that? Many people can once they conceptualize it as an incremental percentage increase.
#3 Divert part of your raise
If you’re in line for a raise (or changed jobs and make more), divert all or part of your raise toward retirement savings. If you received a 7 percent raise, for example, and have a matching 401(k), you can benefit from placing 5 percent of your salary in a 401(k). If your employer matches it 50 percent, you will be saving 7.5 percent of your salary. On a $50,000 salary, that’s $3,750 annually.
#4 Bank your tax return
If you get a tax return, place it in a retirement account before you have a chance to spend it on anything else. The yearly maximum contribution for both a traditional and a Roth individual retirement account (IRA) is currently $6,000 per year ($7,000 if you are 50 years or older), so you can open the type of your choice and place your tax return in there. Note that a traditional IRA contribution may be tax-deductible in the year of contribution, while a Roth IRA is not (because it’s tax-free when you retire, while you pay taxes on traditional IRA withdrawals in retirement).
#5 Maximize your 401(k) contribution to get a match
If your company offers a 401(k) plan with a matching contribution, you’re leaving money on the table if you don’t maximize the match. Let’s say your company matches 50 percent of what you contribute. If you contribute 0, you’re receiving 0. But if you make $50,000 and contribute 3 percent of your salary pretax, you’re placing $1,500 per year in your own retirement account. Your company will match $750, for a yearly total of $2,250. Sweet!
#6 Cut out an unnecessary expense and put the savings toward retirement
If you want to put more in your retirement funds, review your monthly cash flow and expenses. Most people have at least one unnecessary expense they can cut from their budget. Axe it, and then place that money toward retirement. Cable? Netflix? Pizza? Even expensive coffee is a candidate: If you’re paying $5.00 or more for coffee every day, cutting just Tuesday and Thursday gives you an extra $10 per week or $40 per month.
#7 Maximize your tax savings
Both a traditional IRA and 401(k) retirement savings will help maximize your tax savings. Contributions to 401(k)s are taken out pretax, so lower your overall taxable income for the year, which can save considerably on taxes.
#8 Save in a Health Savings Account
If you have access to a Health Savings Account (HSA), they can be great retirement savings vehicles. Yes, they are primarily for health expenses and require a high deductible health plan. But unlike their more conventional cousin Flexible Spending Accounts (FSAs), contributions to HSAs are not “use it or lose it”. They can remain in your account year after year, until retirement, compounding returns in whatever investment you placed them in tax-free. Like 401(k) contributions, your HSA contributions are tax-free, too, and the withdrawals are tax-free as long as they’re used for eligible expenses. Health care expenses in retirement are high, on average, so this is a great way to financially plan for them.
#9 Make catch-up retirement contributions if you’re 50 or over
We’re already mentioned that the $6,000 annual limit on IRA contributions. But wait! You can actually contribute $1,000 more if you’re age 50 or over, for a total $7,000 annual limit. The Internal Revenue Service allows people approaching retirement to make these catch-up contributions every year. The same is true of 401(k)s; the annual contribution limit is $19,500 in 2020, but people 50 and over can contribute an extra $6,500, for a total yearly limit of $26,000 — much higher than IRAs. Catch-up contribution limits often rise with a new year, so be sure to check the limits every year.
# 10 Delay filing for Social Security benefits
Be sure to plan when you take your Social Security retirement benefits to maximize them. While these benefits are determined by several factors, including how much you’ve made on average during your working life, you can also influence how much you’ll get by choosing your retirement age prudently. People become eligible at the age of 62, but the benefit is reduced if you take it at that age. If you were born in 1960 or later, your full retirement age is 67, but the benefit will increase approximately 8 percent for every year you delay beyond that, until the age of 70. (Benefits do not increase beyond the age of 70.)
At Sapiat Asset Management LLC, we are passionate about helping people reach their goal of financial freedom. We are the only, fee-only, fiduciary, Registered Investment Advisory Firm in Greeneville, TN. Contact us today for a complimentary consultation.