The start of a new year is an excellent time to increase your retirement savings. It’s a great time to re-strategize, learn from your experience in the last year, and work towards increasing your retirement savings.
Given enough time to compound, any tiny increases you make to your monthly savings can result in a considerably larger retirement account balance.
Here are some ideas for increasing your retirement savings without sacrificing your quality of life:
1. Increase your savings by 1%.
2. Automate Your Savings
3. Contribute what’s required to get a 401(k) match.
4. Take Advantage of Tax Breaks
5. Contribute a portion of your tax refund.
6. Redirect the money you’ve been given.
7. Save money by paying reduced fees.
8. Redirect Your Raise
9. Avoid Penalties
10. Eliminate one wasteful expenditure at a time.
1. Increase Your Savings By 1%.
A minor increase in your retirement savings every month might result in a significant rise in your retirement nest egg over time. For instance, if you earn $5,000 annually and save one percent more ($42 monthly) and get 6% annual returns, you will have an extra $57,517 after 35 years.
Your goal every year should be to set aside a little bit more than the year before. So if you saved $4,000 last year, for example, you could boost it to $4,200.” This is another reason why it’s essential to start planning for retirement as early as possible. The earlier you start saving, no matter how small, the more time it will have to compound.
2. Automate Your Savings
Automation is one of the most effective ways to ensure you save every month. You can have your retirement savings deducted from your account once your paycheck comes to avoid the temptation of spending part of it.
Contributions to your 401(k) are usually deducted automatically from your paycheck, so you don’t have to do anything to save money every pay period. Also, consider setting up a direct deposit to an IRA.
3. Contribute what’s Required To Get A Full 401(K) Match.
Make sure you save enough to qualify for 401(k) contributions from your company (k). Not taking advantage of 401(k) matches is like leaving free money on the table.
For instance, if your employer matches 100% of your contribution, it’s important to contribute the maximum amount to ensure you get the entire match. Also, make sure you’re vested in the 401(k) plan before leaving a job so you can keep the employer payments.
4. Take Advantage of Tax Breaks
Without the weight of taxes, your money will grow quicker. A standard 401(k) or IRA can be used to postpone paying income taxes, while a Roth 401(k) or Roth IRA allows you to prepay taxes.
While the prospect of delaying income taxes sounds good, having a Roth IRA gives you options during the withdrawal stage of retirement, as you won’t have to pay any taxes. You’ll also not be forced to make a required minimum withdrawal (RMD) like 401(k) accounts.
Additionally, if you’re a low to moderate-income Roth saver, you’ll qualify for savers credit.
5. Contribute a portion of your tax refund.
Filling the IRS 8888 Form allows you to deposit part of your tax refund into a regular or Roth IRA. You can choose whether to apply your IRA contribution to this year’s tax return or the following year’s tax return.
If you get a tax refund, the government has effectively’ kept this money for you for the year. By putting this money back into an IRA, you’ll be saving money into your retirement fund without even realizing it.”
6. Redirect The Money You’ve Been Given.
If you get a bonus, prize money, inheritance, or other cash windfalls, resist the urge to spend it right away. Make it a habit to set aside a percentage of every windfall to your retirement fund. If you put the money into a 401(k) or an IRA, you can avoid some of the tax consequences of getting more income. The funds will not be subject to income tax until you withdraw it from the account years later.
7. Save Money By Paying Reduced Fees.
Don’t pay more than you have to invest. Identify lower-cost funds within your 401(k) and plan using your yearly 401(k) fee disclosure statement to assist in that search. You can also browse for low-cost funds or Indexed Annuities for your IRA. You get to keep more of your money with lower fees. Investing in funds with high fees chops off a large part of your investment dollars over time.
8. Redirect Your Raise
There’s no better way to compound your retirement savings than to increase your contributions whenever you earn a raise.
Consider putting a portion of your raise into a retirement account the next time you earn one. For example, if you’re earning $3,500 monthly and get a $500 raise, you can conveniently save the whole $500 or half of it and still live within your old pay.
Just set up an automatic saving, and you won’t even know the money is gone.
9. Avoid Penalties
If you take money out of your retirement funds before you reach the age of 59½, you may be subject to early withdrawal penalties. If you often swap funds, you may incur costs. To avoid additional penalties, start withdrawing from your retirement account once you turn 72 and avoid unnecessary activities that will incur additional fees.
10. Eliminate One Wasteful Expense At A Time.
A gym membership that you don’t use or an expensive cable TV package that you don’t have time to watch are two common examples of unnecessary expenses. Cut a service that isn’t necessary or redundant, and put the money into a retirement account.
Conclusion
Retirement planning isn’t set in stone; instead, it’s a continuous process to manage your finances and ensure you have enough kept aside for your non-working years.
