5 Things to Do to Boost Retirement Savings
When you’re young, it’s easy to feel like there’s no rush to save for retirement. But before you know it, you might find yourself in your 50s or 60s and nowhere near your retirement savings goal.
Even if you started saving early, you might have concerns about whether you’ll have enough for your retirement years. Changes in employee benefits, longer life spans and rising health care costs are all increasing the burden of saving for retirement.
If you’re getting closer to retirement and don’t feel you have adequate savings, what can you do to boost your nest egg? A good first step is to determine how many years of retirement you might need to plan and save for by using the Social Security Administration’s Life Expectancy Calculator. Then you can use a retirement calculator (many financial services firms and nonprofits offer them) to figure out how much you should be saving based on factors like your current age, income and retirement age goal.
And, if you want to dive even deeper, use FINRA’s Retirement Calculator to see whether you need to save even more to meet your expected expenses in retirement.
If you discover you might come up short, here are five tips to help you adjust:
1. Take Advantage of Tax-Advantaged Retirement Plans
One great way to catch up is to contribute more to tax-advantaged plans, including individual retirement accounts (IRA) and workplace plans like a 401(k). If you’re 50 or older, you’re eligible to contribute beyond the maximum annual contribution limit. Check here for IRS Contribution Limits.
Whether you’re an employee or self-employed, one of the simplest ways to save is through automated investment plans. Many employer plans offer features to deduct pre-tax funds from your paycheck, and often these funds are matched. If you're a small business owner or self-employed, you can also automate your retirement savings through monthly deduction options.
Contributing that extra cash is easier said than done, but it’s important to remember that if you contribute to a tax-advantaged account like a traditional 401(k), your annual income will be reduced by less than the amount of your contribution due to the tax savings (just how much depends on your tax bracket and financial situation). You can use FINRA’s “401(k) Save the Max” calculator to see if you’re on track to save as much as you’re allowed.
2. Explore Ways to Cut Spending
Be sure you’re controlling your finances efficiently, and see if there are any areas in which you can reduce your spending now. Start by taking a hard look at your current budget. Budgeting is a function of how much money is coming in and how much is going out. If you’re able to cut out some spending, then you can, with discipline, put that money into a retirement savings account instead.
Some expenses can decrease during retirement, such as commuting costs if you go in to an office. If these changes aren’t substantial enough to affect your retirement savings, you might have to consider other significant cuts during retirement. For example, you might consider moving to a less expensive home, getting rid of a car or moving to an area that’s more walkable.
3. Consider Working Longer
There are some obvious advantages to working longer, such as having more time—and additional income—to save for your retirement. Another benefit is that the longer you put off receiving Social Security benefits after your full retirement age, the bigger payment you’ll receive once you do retire. That increase is 2/3 of 1 percent for each month that you delay receiving the benefits, or 8 percent annually, until you reach age 70.
If you choose not to remain in your standard job longer, you can consider taking on additional work through the gig economy (e.g., driving for a rideshare company or other freelance work) now or during your retirement to help push back the date when you start receiving Social Security benefits.
4. Get Serious With “Extra” Money
If you receive a raise, inheritance, bonus or tax refund, resist the urge to splurge. Instead, allocate that extra cash to your retirement, possibly via an account with tax advantages to maximize your savings. Don’t miss out on any opportunity to put your money to work for you to help build a secure financial future.
5. Evaluate Investment Fees
Even with low- and zero-commission trading, investing is never free. A variety of fees can apply to different types of accounts, which can have a surprising impact on your returns. Conduct periodic check-ups on your financial accounts to ensure that your money isn’t slowly being eaten away by high fees.
If you invest in mutual funds, exchange-traded funds (ETFs), exchange-traded notes or money market funds, FINRA’s Fund Analyzer can help you can help you make informed decisions about your investments by demonstrating the impact of fees and potential discounts. While you might not have much power to control fees in an employer-sponsored retirement plan, you certainly do when it comes to investments you make on your own.
And one last tip: Consider working with an investment professional to help you define your long-term goals and how best to achieve them.
Learn more about retirement accounts and investing.
