Many people live their twenties as one big decade of spending. This often leads to the realization later in life that maybe they should have spent a little more time saving for retirement and a little less on life’s luxuries. However, not all is lost when it comes to boosting your retirement savings, even if you are starting out later than you’d hoped. Whether you are just now in the early stages of your career or you’re a few years away from hanging up the cleats, you still have the chance to grow your retirement account and make the most of your current savings, and your savings going forward.
We all have heard that the earlier you begin planning for retirement the better off you will be when it comes time to retire because of what I like to call the 8th wonder of the world, compound interest, which is the interest we earn on our previously earned interest. Even though we all know saving and starting early is immensely beneficial, not everybody heeds this advice. If you are on of those who began saving later in your career or haven’t even begun saving yet, first off, you are not alone, secondly there are steps you can take now that will still help you boost your savings for retirement. The following tips can help increase your retirement savings account no matter what age you began investing.
If you are just beginning to set aside money for your eventual retirement, today is the best day to start. By setting aside as much as you can afford to now, you are allowing compound interest to work both hard and longer for you. The longer your money can earn interest, and interest on top of that interest, the faster your savings will accumulate to a number you didn’t know was possible. This is one reason I tell my students that even if all they can afford is $25 a month, they should begin saving it now because it will continue to grow, even if just a little bit, and it will get them in the mindset of setting aside money every month for retirement.
Automate the Process
By making your retirement contributions come out of your paycheck before you even receive your paycheck is a surefire way to ensure you are actually investing in your future and will allow you to be actively investing in your retirement without having to actively remember to do it every month, and therefore have no temptations to spend that money elsewhere. Many financial advisors and personal finance professors love to say the phrase “pay yourself first”. By having your retirement savings automatically deducted or transferred each month you are paying into your future self’s invest income. If your employer doesn’t offer a retirement plan that you can invest into, many banks offer automatic transfers from your checking account to a retirement account that can be done on payday every month, or two weeks, depending on your pay cycle.
Take Advantage of Free Money
Now, you may be thinking money is never free, and you may remember your economics professor saying, “there is no such thing as a free lunch”. While that is all true, many employers offer you free money as an incentive to invest into your retirement savings. This is done through an employer sponsored 401(k). Many employers will match, up to a certain percentage of your income, dollar for dollar what you set aside into your 401(k). For instance, if your employer matches up to 3% of your income dollar for dollar and you make $50,000 per year, if you put in 3% ($1,500) they will throw in an additional 3% ($1,500). This is basically free money to your future self. Leaving this money on the table can be costly to your future savings balance. Taking advantage of this incentive from your employer can help your compounded savings especially if you start at a young age, but even if you are closer to the end of you working career it is vital to ensure you are receiving 100% of your employer’s match if they offer one.
Delay Your Social Security Withdrawals
Age 62 is the first year we can begin taking social security withdrawals, thus leading many people to assume that is when we must start receiving our benefits. However, age 62 is simply the earliest you can begin and not when you have to begin receiving payments from Social Security. For every year between the ages of 62 and 70 that you delay the beginning of your payments, your payment amount actually increases. By delaying the start of your payments, thus increasing their monthly amount, can seriously make up for any deficiencies your retirement savings may have no matter what the cause. Determining how much you will need in retirement is always the first step, then saving to hit that amount should be next. However, we all know life happens and nothing ever goes according to plan. Delaying your social security payments can be one way to make up for any bumps in your savings plan that may have come along in your savings journey.
Use the Availability of Catch-Up Contributions to Your Advantage
Unfortunately, the amount of money we are allowed to invest into our 401(k)s and IRAs is limited by the government. This is one reason why beginning as early as possible is important for the growth of your retirement accounts. This doesn’t mean all is lost if you began setting aside money for retirement later than your peers. As soon as you reach the year in which you will turn 50 years old, you are allowed to make what the government calls “catch-up” contributions. These contributions are allowed to exceed the previously set limit of money deposited into your retirement plans. So, if you got a late start on saving, or are simply looking to bolster your already healthy retirement savings, catch-up contributions may be your best available avenue to the retirement you had hoped for.
One thing I always preach to my students is that the earlier they begin saving for their future the better. However, it is always important to remember that if you are not where you’d like to be when it comes to your retirement balance, not all is lost. Taking the above steps no matter how old you are when you begin saving for retirement can help boost your savings and make your financial life a little less stressful when you decide to retire.
Biography: Caleb Martin is an accounting professor at North Greenville University where he teaches both accounting and financial management courses. Caleb has experience ranging from staff accountant to controller for commodity companies prior to entering academia and has a passion for personal finance and setting others up for financial success.
This information was originally found at ChristianFinanceBlog.com.