By Commercial Bank | September 17, 2024
Ensuring you have enough money in your retirement account can be a daunting task. Whether you’re starting early or looking to catch up, there are retirement savings options for everyone. Read on to learn 10 ways to boost your retirement savings.
An IRA account is essential for retirement planning because it provides a tax-advantaged way to save for retirement. IRA stands for individual retirement account. An IRA allows you to contribute pre-tax income, which reduces your taxable income, and the earnings grow tax-free until withdrawal, making it an attractive option for long-term savings.
There are two different types of IRA accounts—a traditional IRA and a Roth IRA. Traditional IRA contributions may be tax-deductible, and you can defer paying taxes on the earnings until you retire. Based on your tax filing status, you may also be interested in a Roth IRA, which is funded with after-tax contributions. Once you turn age 59½, your qualified distributions can be pulled federal income tax-free.
Take advantage of compound interest and leave your retirement account alone as much as possible. Because there are some qualified reasons you may be able to pull from your retirement account, such as purchasing a home or adoption fees, it can be tempting to pull from your retirement account early. However, compound interest favors those that invest early and leave the money in to grow, so keeping your money in for as long as possible is beneficial for long term growth.
If your employer offers a traditional pension plan, do some research to see if you qualify. You can ask your employer for an individual benefit statement to see what your benefits are worth. It’s important to know what would happen if you switched jobs, and you can inquire if your pension plan has transferred if you recently changed jobs.
The earlier you start saving, the more time your money has to grow. Even a small amount saved each month can add up to a significant amount over time, thanks to the power of compound interest. Take advantage of compound interest by contributing to your retirement plan as early as possible. Compound interest is the interest you earn on the interest from your investment. Waiting a few years to invest could mean the difference of tens of thousands of dollars in retirement.
One of the best ways to ensure you’re saving enough towards your goal is to set up automatic savings. When you set up a withdrawals towards your retirement goal for each paycheck, you don’t even need to think about setting the money aside each time. This leads to a better chance you will reach the goals you set for yourself.
Social Security is a tempting retirement savings option because it's easy to understand and the payments are guaranteed. But if you're eligible for the benefits at age 62, you're giving up a lot of money by taking them early.
You get higher benefits. For every year you wait to start collecting Social Security, your monthly benefit increases 8 percent. That means if you start at age 70, instead of 62, your monthly check will be 132 percent greater than what you would have received if you had taken it at 62.
If you take Social Security early, your monthly check will be reduced by 25 percent for the rest of your life. If you wait until 70 to collect, that reduction disappears and your checks are higher than they would have been at any other age.
If you're not saving enough for retirement, your employer may be willing to help you out. And if they do, they may match some of what you contribute to your 401(k), 403(b) or other workplace retirement plan.
The good news is that even though many companies are cutting back their retirement benefits, most still offer a match of some kind. The bad news is that many employees are leaving money on the table by not taking full advantage of their employer's match.
Financial planner Michael Kitces of Pinnacle Advisory Group in Columbia, Md, says If you put in 3%, you have 100% return. "This is free money."
If you’re 50 years old or older, you may be eligible for catch-up contributions to your retirement plan. The additional amount you can contribute is a percentage of the annual contribution limit.
Catch-up contributions must be made in addition to the standard contribution limit. For example, if you’re 55 and make a $19,000 standard contribution plus a $6,000 catch-up contribution ($25,000 total), that would bring your total annual contributions up to $31,000 (plus any other pre-tax or Roth contributions).
One of the biggest reasons people don't save enough for retirement is that they don't budget their spending. If you have a lot of expenses and little income, it's hard to save. But if you know where your money is going, you can find ways to cut back on some expenses and funnel those savings into your retirement fund.
Know what you're spending now. Establish a baseline by recording your expenses for one month. This will help you see how much money is going toward fixed costs (like your mortgage) versus variable costs (like food or clothing).
Identify areas where you can cut back. Look at each category in detail and figure out which ones are nonessential — then eliminate them from your budget. For example, if you're eating out too often, consider cooking at home.
Create a spending plan that fits your lifestyle but also helps build wealth over time. Your plan might include investing more heavily in stocks than bonds; reducing debt such as student loans; increasing contributions to an IRA or 401(k); paying down credit card debt.
Saving for retirement is a critical aspect of financial planning that should not be ignored. It is essential to start saving for retirement as early as possible, even if you are in your 20s or 30s. The earlier you start, the more time your money has to grow, and the more comfortable your retirement will be.
Starting early also allows you to take advantage of compound interest, which is the magic of earning interest on top of interest. The longer your money is invested, the more time it has to grow, and the more interest it will earn. Even a small amount saved each month can add up to a significant amount over time, particularly if it is invested wisely.
Saving for your golden years can be a daunting task, but by starting early and saving often, you can build a substantial nest egg that will support you through your retirement years.