It’s never too early to start planning for retirement, but if you haven’t started yet, it’s not too late to contribute to your retirement plan and make up for lost time. Life gets pretty expensive, and the more you’ve padded your retirement fund early on, the less you’ll need to worry about covering your costs as you get older and prepare to retire.
But let’s face it – saving money for retirement can be downright challenging. Still, setting money aside for your retirement fund is crucial and deserves your full attention. Luckily, there are some simple strategies that you can employ to help you save up and beef up your contributions to your retirement fund so you can enjoy a nice financial cushion when you reach retirement.
1. Automate Your Savings To Your Retirement Plan
It’s tough to part with your money, yet setting aside a certain percentage of your income every month is extremely helpful in growing your retirement fund. Rather than manually transferring money from your checking into your retirement account each month, consider automating your savings instead. Most financial institutions allow their customers to make regular contributions every month. This is a great way to stick to your plan, and you won’t have to think twice about it.
2. Contribute to a 401(k)
If your employer offers a 401(k) plan, you can contribute pre-tax money to it. Contributions come out of your paycheck before taxes are taken out. If your company also offers a Roth 401(k), your contributions will be coming from your after-tax income, in which case you would should compare your tax bracket now to what you expect it to be in retirement to determine if this is the right option for you.
3. Meet Your Employer Matches
If the company you work for offers to match your 401(k) plan, take advantage of this perk by contributing! For instance, let’s say your employer offers to match half of your contributions up to 4% of your salary. If you make $60,000 per year and contribute $2,000 towards your 401(k), your employer would throw in another $1,000. This is a great way to get some support in building your retirement fund. Make sure you contribute enough to get the full match or you’ll be throwing money away!
4. Open an Individual Retirement Account (IRA)
Establishing an IRA is another great way to fund your retirement plan. With a traditional IRA, you might be able to get a tax break and grow your investment earnings tax-deferred until it’s time to withdraw the money when you’re retired. Roth IRAs are a great option if you’re young and just getting started in your career. They offer flexibility (withdrawals of principal can be made at any time), and if you’re in a low tax bracket now and expect to be in a higher one in retirement, it could save you big on taxes. Even my baby daughter has a Roth IRA!
5. Make Catch-Up Contributions if You’re 50 or Older
You’re limited in your annual contributions to 401(K)s and IRAs. But after you reach the age of 50, you can contribute more than the standard limit with catch-up contributions. If you did not start saving early, you can take advantage of this offer to help boost your retirement savings.
Understanding the importance of saving for your nest egg is crucial. Calculate how much you need to save up to live comfortably in retirement, and take advantage of creative ways to increase your contributions when you have the chance.