Tips to Boost Your Retirement Savings
January 29, 2021
Determining exactly how much retirement savings you need is no easy task. In order to make the perfect calculation, you would need to know your level of expenses during retirement, future tax rates, future returns on your assets, and ultimately how long you are going to live. These are all things you know off the top of your head, right? Probably not, which is why it’s no wonder that the thought of doing these calculations is daunting and often keeps individuals from taking action to prepare for retirement.
Even without an exact calculation, it is probably safe to assume that you want to accumulate more funds now so you can enjoy the type of retirement lifestyle you want later. This may be an overly simple suggestion to motivate you to do something you know you should already … start saving more and do it now. Then the numbers aren’t too complicated.
Let’s assume you want to have an additional $100,000 accumulated when you retire at age 65. The question becomes, “how much do I have to save between now and age 65 to reach that goal?” The only variables are how old you are now and what you will earn on the funds by the age of 65. We provide a handy calculator to help you do the math.
Start with an Automatic Savings Program
If you participate in your employer’s 401(k) plan, increase your monthly deferral as much as you can. This will also reduce your current taxable income by the amount you choose to defer as the funds accumulate*. If you already contribute the maximum to a 401(k) plan, establish an IRA or Roth IRA. Anyone with earned income can contribute to a regular IRA, while Roth IRAs have some income restrictions. In either case, the funds still accumulate on a tax-deferred basis.
Also, consider establishing an automatic savings plan with monthly transfers into a savings account directly from your paycheck or your checking account. There are no tax benefits, but you will be accumulating funds toward your goal that are not as easy to access.
As you advance in your career and earn more money, increase the amount you save by avoiding lifestyle creep. If you get a big raise, celebrate by bumping up your savings rate before buying a new car or booking a big vacation. Even if you just get a cost-of-living increase of 3%, consider putting 2% toward your retirement and then pocket the 1%.
In the case of retirement planning, it’s critical to do an extensive review of your needs and take the necessary actions now. That starts with increasing anywhere you can save to build towards your dream retirement lifestyle.
*Always consult with your tax advisor about any specific tax issues and concerns for your retirement plans.