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7 Ideas to Increase Your Retirement Savings

Written by prositesfinancialSep 4 • 4 minute read

retirement savings

Most of us want to retire someday, ideally, with a comfortable retirement nest egg saved up, growing and earning interest for many years. However, this does not happen by accident! It takes many years of discipline, dedication, and hard work to retire successfully. In this article, we’ll explore several ways you can help to increase your retirement fund so you can retire and live happily with the peace of knowing you prepared for it properly.

1. Begin Right Away

Whether you’re 25 or 55, if you haven’t begun saving and investing in your retirement, it is essential to start now. You can’t undo the past, but you can choose to make sound financial decisions today. Of course, the younger you are, the more advantage you gain by starting early. Interest earned on investments and savings compounds over time, and the longer it has, the more dramatically it grows. Your earnings increase over time, and that growth is reinvested. Then those proceeds are reinvested, and on the cycle goes. This is the miracle of compound interest.

2. Open an IRA

An IRA (Individual Retirement Account) is a way for individuals to save for retirement regardless of the options provided by their employer. IRAs offer various tax benefits depending on which type you choose. The Traditional IRA features tax-deductible contributions where the tax is deferred on the earnings until withdrawal during retirement. There are specific income limits on Traditional IRAs, and if you don’t meet them, you may be better served by a Roth IRA.

A Roth IRA is funded using after-tax contributions. The advantage is that taxes have already been paid before the contributions. The withdrawals are tax-free if made after the age of 59.5, provided you meet the withholding requirements. This option means you do not pay taxes on the earnings and distributions, which would have been taxed under a Traditional IRA.

3. Contribute to Your 401(k)

If you are eligible to pay into an employer-provided 401(k) plan, this will allow you to add pre-tax income to the account, which can provide an advantage not offered by either of the two IRA options above. For instance, let’s say you invest $100 of your paycheck each month in the 401(k) plan. If this had been after taxes, that amount would have been reduced by all of your various taxes. But because it is contributed pre-tax, you will actually be giving the full $100 you earned.

Some employers offer Roth 401(k) plans, which use the after-tax income for contributions rather than pre-tax income. Then, you pay taxes at the time of withdrawal based on the income bracket you happen to be in at that time. You will need to do some work to estimate what that tax bracket will be, compare it to your current tax bracket, and decide whether you want to contribute this way or not.

4. Maximize Your Employer 401(K) Match 

Some employers will match employee 401(k) contributions if you contribute a certain specified amount to the 401(k) each month. If your employer offers this, it would be a good idea to contribute at least that amount each month to qualify for the match, as this will give your retirement contributions a very substantial boost! For example, if your employer matches your donation by half and you choose to contribute $2400 over a year, they would then deposit an additional $1200 of company funds into your account, free of charge. It’s quite literally free money, and who doesn’t love free money?

5. If You’re Over 50, Use Catch-Up Contributions

It is important to start contributing to your retirement early for the reasons we described above. However, suppose you haven’t been able to maximize your contributions. In that case, the IRS will allow you to make additional contributions beyond the normal limits (up to specified limits) as of the calendar year you reach 50. For instance, as of 2019, you can contribute an additional $1,000 per year to your IRA (Traditional or Roth) and $6,000 more to your 401(k) plan each year.

6. Set Up Automatic Savings on Your Bank Accounts

Ideally, you should pay yourself first each month by setting up an automatic contribution to your retirement plan that happens in the background without your intervention. This way, you can avoid the temptation to spend that money on impulse or short-term purchases, and you can be confident that your retirement plan is on track. How well this works will depend on the features offered by your bank or financial institution. Still, you should be able to set up some form of automatic savings and periodically transfer the contents into your retirement accounts.

7. Establish A Budget and Stick to It 

There are often countless places to save money in a typical monthly budget. It may mean canceling various subscriptions you’ve long since forgotten about or stopped using. It could mean getting a better coffee setup at home, so you don’t have to stop every day on the way to work. It could mean bringing your lunch to work instead of buying it out every day. It could mean watching a movie at home on your sofa instead of going to the theater.

Perhaps you could negotiate a lower car insurance payment or other bills. Most importantly, having a budget means creating a plan to live within (or ideally below) your means, and saving (to invest) the difference each month.

Hopefully, you can get started on a successful journey towards your retirement, and these tips prove helpful to you in reaching that goal. If you have any other information on how others can save more towards their retirement, please share them below!

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