Retirement Savings Catch-Up Strategies
Seven Tactics to Help You Build a Bigger Nest Egg - Even if You're Way Behind
In a perfect world, we would all start saving for retirement at age 25 and life would never throw any curveballs to send us off track. Of course, this is far from a perfect world, and that’s why so many Americans find themselves playing catch-up and carrying anxiety about never achieving their retirement savings goals.
If you find yourself in this boat, you’re certainly not alone. Luckily, there are many powerful techniques you can use to accelerate your savings right now – even if you’ve waited longer than you had hoped to begin saving. Below, we’ll look at seven strategies to help you get serious – and successful – about your retirement nest egg.
Strategy #1: Maximize Your Match
Do you have an employer-sponsored retirement plan, like a 401(k) or a 403(b)? If so, you may just have a secret weapon available to you for retirement savings: the employer match. Many companies will match their employees’ retirement contributions up to a certain amount, meaning you can access free money just by contributing a certain amount from your paycheck each month. The key to maximizing this “second contributor” to your account is making sure you understand what your employer’s max contribution is – then do everything you can to make sure you get it. This may mean setting aside more from each paycheck than you typically do, but the payoff in retirement will be well worth your trouble.
Strategy #2: Use Tax-Advantaged Accounts
If you’re contributing to a retirement plan through your job, or you have an individual IRA, you can receive favorable tax treatment from the IRS, too. With these accounts, you won’t pay any federal taxes on your contributions, leaving you with a greater ability to build your savings in the present. Then, you’ll only pay taxes on your contributions when you begin taking distributions in retirement. These accounts do have contribution limits in place, which you can check out here for 401(k)s and here for IRAs.
Strategy #3: Trick Your Brain
As you learn about a potential company match and the IRS’ contribution limits for certain types of accounts, you can better goal-set for how much to set aside each month – especially if you’re not yet maximizing your savings. However, it can be daunting to learn that you need to save, say, an additional $600 every month. Rather than make such a big change all at once, use the “One Percent Trick” instead. Gradually increase your retirement contributions by just one percent each month or quarter, and soon you’ll be saving a lot more without feeling a big hit to your paycheck all at once.
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Strategy #4: Make Use of Your Health Savings Account
If you’ve heard lots of buzz in recent years about Health Savings Accounts, it’s for good reason. HSAs offer a triple tax benefit you simply can’t get with other types of savings accounts. You can max out contributions free from federal income tax, most of which are deductible in most states, and invest the money with no tax on your earnings either. You can also withdraw funds tax-free for qualified medical expenses. This particular detail makes HSAs ideal for retirees because studies show that the average retiree’s medical costs are 15 percent higher than their annual expenses. So, check to see whether your employer offers an HSA plan and if you’re already using one then consider upping your contributions. You can check out contribution limits here.
Strategy #5: Set Yourself Up for Growth Over Time
You know what they say, “With risk comes reward.” No, no one wants to take too much risk with their hard-saved dollars, but it makes sense to dedicate at least some of your savings to stocks because, historically, they offer the most potential for your money to grow over time. Every person’s risk tolerance is different, so aim for an investment mix that you feel comfortable with, while also positioning yourself for growth over the long-term.
Strategy #6: Delay Your Retirement
This is probably not the advice you were hoping for because, let’s face it, no one wants to delay the retirement they’ve been dreaming of for years! However, working for just 2-3 more years can have a major impact on your nest egg. Consider the following example:
Maybe you’re 40 years old with nothing saved for retirement yet, and you have an annual income of $80,000 with 2 percent raises every year. Between your own contributions and matches from your employer, you can start saving 15 percent of your income annually toward retirement. Let’s say you decide to retire at 65 and you’ve earned a seven percent return on your investments each year, leaving you with about $830k. Not bad, right? However, consider what happens if you wait three additional years and retire at 68 instead: you’ll end up with $1.08 million in savings instead. That’s a full 30 percent more from just three more years of work. Check out your own scenario using this helpful calculator from Bankrate.
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Strategy #7: Find a Retirement Savings Pro
There are so many considerations that go into retirement, not to mention a plethora of tools and strategies to help you achieve your goals. Sorting through them on your own can be confusing and overwhelming. How much do you need to save? Are you on target to get there? Does your risk tolerance match your current portfolio? A seasoned financial professional can help you sort through these questions and more.
If you’re ready to partner with a financial advisor to level-up your retirement savings strategies, let’s start a conversation today. At Echo Wealth Management, we take the complexity out of financial planning and give you the confidence you need to follow your financial and life goals. Let us put our expertise to work for you today.