Maximizing Your Retirement Savings – A Deep Dive Into Plans to Maximize Your Savings
If you want to retire with enough money to live comfortably, you must prioritize maximizing your retirement savings. Here are seven strategies that can help you do just that.
Don’t be tempted to spend it some whenever you receive an unexpected windfall, such as a bonus or tax refund—instead, tuck away part of it in your retirement account.
Paying Off Debt
If you carry a lot of debt, paying it off should be your priority. Then, focus on saving for retirement. A good rule of thumb is to save about 15% of your income.
That’s the guideline many people follow, including devotees of the “financial independence” or “retire early” movement, who aim to sock away 40%, 50%, or more of their income with the hope of leaving the workforce in their 60s. But if you get a late start on saving, the amount you need to sock away may be much higher.
Regardless of your savings goals, avoiding spending too much is essential. Consider making a budget and identifying any habits or patterns that can be eliminated to free up money. This could include automatically renewing subscriptions that aren’t being used or eating out too often. Setting aside emergency funds before saving for retirement is also a good idea.
As you pay off debt, redirect the payment amounts into your savings accounts and your traditional IRA vs 401k. Direct those into your retirement account if you have any windfalls—like tax refunds, salary bonuses, or inheritances. Just make sure you’re not dipping into emergency funds to fund luxuries; doing so can lead to higher-than-expected expenses in retirement and can cost you in the form of lost investment returns.
Maximizing Your Employer Match
Many employers offer matching contributions to their retirement plans on employee contributions. These can range from a percentage to a flat dollar amount. Regardless of the specifics, saving enough to get the maximum employer match is a good idea.
This may mean adjusting your budget to negotiate lower credit card debt rates and stopping buying coffee at the office. However, it is essential to remember that even small changes can add up over time. For instance, if you take half of your next 4% raise and invest it in your 401(k) instead of spending it on a new TV, you’ll save hundreds of dollars yearly while boosting your retirement savings.
While most Americans would say paying off debt is their top financial priority, maximizing retirement savings should still be on the list. Especially with the increasing costs of health care and living expenses, it is more important than ever to build a nest egg that will provide you with income when you stop working. This is why it’s essential to start early and keep investing regularly, taking advantage of the power of compounding over time. If you need help getting started, a financial professional can work with you to establish a strategy that fits your goals and situation.
Investing in Yourself
When you’re saving for retirement, it’s important to remember that the money you put into your savings will grow, thanks to compound interest. If you start saving early, your retirement money will be worth more than starting later in life.
The best way to get into a good savings habit is to make it a regular part of your budget. That way, the money earmarked for retirement is as much of a priority as paying your credit card bill.
Setting aside something each month is essential, even if you don’t have much to spare. You’ll quickly build up a substantial nest egg if you have a fixed percentage of your monthly income that goes to retirement. If you need help figuring out where to start, try a retirement calculator from NerdWallet.
Another option is to open a separate savings account and earmark a percentage of each paycheck. That way, emergency funds will be available if a car repair or new iPhone sneaks up on you and throws your retirement savings out of balance.
And if you’re still in the workforce, it’s wise to contribute enough to take advantage of your employer match. Then, once you’re close to retiring, consider rolling over any old 401(k)s into an individual retirement account (IRA) you control.
Making the Most of Your Home Equity
Home equity, the share of ownership in your home, typically makes up a significant chunk of most retirees’ net worth (the value of assets minus all debts). There are many ways to use the equity in your house to meet retirement needs, such as financing expenses or home improvements. One option is to borrow from a home equity line of credit (HELOC) or other home equity loans, which can provide the cash needed without tapping into retirement savings or incurring transaction costs and capital gains taxes.
Alternatively, some homeowners may choose to sell their homes and move to new ones in a more affordable area, freeing up the proceeds from the sale for retirement needs. This strategy can be a powerful wealth-building tool for those who can afford it, as it allows them to avoid having to pay capital gains taxes on retirement account distributions and skip the required minimum withdrawals from their individual retirement accounts or workplace plans at age 5912.
Whatever route you take, saving as much as possible is essential, starting early to maximize the power of compound interest and taking advantage of any employer match programs if available. Additionally, it’s wise to have short-term savings on hand that can be used in the event of an emergency so that you can preserve your retirement account balances and avoid dipping into them prematurely.