With longer life expectancies, a roller coaster stock market, and lessons learned from a post-pandemic world it’s more important than ever to find ways to boost your retirement savings now. Although there may be many obstacles to doing so, even just a few of the simple tactics outlined here can go a long way to increasing your nest egg at retirement.
1 – Take Advantage of Your Employer Match
If you work for an employer that offers a matching incentive in your retirement plan, take full advantage of it. After all – it’s like getting tax free money! Even a match of a few hundred dollars per year can add up over time thanks to the magic of compounding. For example, if an employee contributes 6% most companies will match half the contribution which equates to a 3% match or 9% in total. For an employee earning $50,000 per annum on average over a 35 year career, the extra 3% match is equal to a whopping $207,000 (assuming a 7% return) at retirement.
2 – Maximize Your Retirement Plan Contribution
Provided your employer offers a retirement plan such as a 401(k), consider increasing – or even maximizing – your contributions (see current limits). This can help you now by reducing taxable income, and will also result in more dollars going towards tax free compounding. By forcing yourself save now you will save yourself plenty of financial hardship in the future.
Also if you are over 50 and behind on your retirement savings, make sure you take advantage of tax free catch-up contributions. This special 30%+ boost provided by the IRS for those nearing retirement age allows extra “catch-up” contributions to employer sponsored 401ks and self managed IRAs.
3 – Make Sure the Mutual Funds in Your IRA are Best in Class
If you have money to invest – and especially if you’ve lost money in the recent down market – do your homework and make sure that all future investments have high ratings from a mutual fund rating service such as Morningstar. Even though past performance is no guarantee of future results, a good rating is still a good indicator that the fund is well managed and has a positive past track record.
Your broker or large retirement providers like Fidelity or Vanguard can also be used to check your portfolio diversification and get suggestions on how to better allocate your portfolio.
4- Invest in stocks (risker assets) via your IRA to Boost Returns
Although many people are somewhat leery about getting back into the stock market, now could be a great time to do so. Many good solid company’s stocks are trading at well below value. This means that you could have the opportunity to purchase quality companies at a discount. Some companies allow their employees to purchase company shares at a discount and include these in their retirement portfolio. So if you believe your company has great potential then this could be a great way to put some of your money (not all!) into your company’s shares using pre-tax dollars.
5- Buy Disability and Life Insurance
Even though insurance is not considered an investment as such, it could actually be the best way to protect your investments. And in the case of disability and life insurance, it is also a way to protect your ongoing income for yourself and your dependents.
If you were to ask a group if people what their most valuable asset is, you will likely hear a variety of answers that include things such as their home, their 401(k) plan, or their business. But the truth is that your most valuable asset is your ability to earn an income. Without that, most of your other assets would be impossible to purchase or maintain. Therefore, protecting your income and with life insurance and disability insurance could be the most important investment protection you can buy now and into retirement.
You can get a free quote for life insurance here and see for a relatively small amount you get financial surety for your spouse and/or kids, which makes it a good part of of your overall financial plan.
6 – Reduce Expenses
We’ve all heard the expression, “It’s not how much you make, it’s how much you keep that matters.” This is very true! If you make $1 million, yet you spend even $1 more than that, you will be in the red.
Therefore, watch your expenses. It may seem like common sense advice, but it’s amazing how many people spend more than they make. Over time, this can add up to large amounts of debt that can literally spiral out of control.
Some things you can do to reduce your expenses include paying off high interest debt, evaluating your housing expenses, and even cutting out unnecessary costs such as premium cable channels.
7 – Have an Emergency Fund
This, too, may sound like “Savings 101,” but far too many people go through life without an emergency fund. When an emergency comes up, unfortunately they must dip into their retirement savings to pay the costs. In doing so, this can truly affect your long term retirement income.
In order to avoid dipping into retirement savings, strive to have between three and six months of living expenses saved in an account that you can easily get to in case of emergency. This will help you in case the unexpected comes up, while keeping your long term savings intact.
8 – Contribute to a Health Savings Account
Many people are using their Health Savings Accounts as a way to supplement their retirement income. With an HSA, you can pay for health related expenses, as well as use the account to save for future medical expenses, health insurance premiums, or premiums for Medicare.
Once you reach age 65, distributions from an HSA can be taken out for for non-medical expenses, but are taxed as ordinary income (similar to a 401k). And, unlike your IRA account, there are no mandatory age related required distributions. Therefore, your HSA account can continue to grow indefinitely.
9 – Pay Yourself First
Although it may be difficult to comprehend, paying yourself first is more important than any other bill or debt you may owe. And although you do not want debt to spiral out of control, you must make a point of paying yourself first each and every month. Even if it is just a small amount, YOU and your retirement fund are the most important monthly bill you will ever have to pay.
The best way to do this is to automate your savings by taking out contributions right from your paycheck before you can spend it. This forced saving gives you more discipline and allows you to take advantage of dollar cost averaging as your savings are invested on a regular basis.
10 – Social Security Considerations
Age 62 is the earliest you can begin receiving Social Security retirement benefits, but for each year you wait (until age 70), your monthly benefit will increase. This means pushing your retirement back even one year could make a significant difference. So making saving a habit which in turn pushes out when you need to tap social security, could mean a much more comfortable retirement for you and your spouse
Starting to save for retirement too late and not saving enough are common regrets among retirees. Making the effort now with some of the simple steps above can help you get to retirement in much better financial shape.