Regardless of your age, it is important for you to start saving for your retirement.
The statistics on retirement savings are startling. According to CNBC, people between the ages of 55 and 64 only have a median of $120,000 in retirement savings, which is just 12 percent of the $1 million that is recommended by experts.
Whether you are in your 20s and just starting out or trying to catch up as you approach your golden years, there are some tips that you can follow to increase your retirement savings.
Start Saving Now
One mistake that people make is putting off saving because they want to concentrate on their other expenses. Young people might forgo saving for retirement because they are paying off student loans. Middle-aged people may fail to save enough while they pay for their own children’s college and other bills.
It is important that you do not avoid saving now because if you do, you will have more trouble catching up on your savings in the future. Bankrate recommends that you should save a minimum of 10 percent of your income during each pay period.
Take Advantage of Your Employer’s 401(K) Plan and Match
If your employer offers matching 401(k) contributions, take advantage of them. This is a great way to boost your retirement savings with your employer’s money. If your company offers a five percent match, for example, make sure that you contribute five percent of your income to the 401(k) plan. Your employer will then contribute the same amount, allowing you to enjoy double the savings contribution.
Investopedia states that people who fail to take advantage of their company matches miss out on free contributions from their employers.
Contribute the Annual Maximum Limits
Try to contribute the maximum allowed amounts to your 401(k), 403(b), 457, and your traditional and Roth IRA accounts. The maximum that you can contribute depends on your age.
According to Forbes, the IRS announced that the maximum contribution to 401(k), 403(b), and 457 plans have increased to $18,500 for 2018 if you are under the age of 50 and will not turn 50 this year. If you are 50 or older, you can also contribute another $6,000 as a catch-up contribution. The contribution limits for a traditional or Roth IRA in 2018 are $5,500 if you are under age 50 and $6,500 if you are 50 or older.
If You Are Self-Employed, Take Advantage of Solo IRAs and SEP Plans
According to Forbes, self-employed people, including people who have regular jobs but who also have side businesses of their own, are able to take advantage of solo IRAs and SEP plans. These plans can significantly boost their retirement savings while sheltering more money from income taxes today.
If you are self-employed, you can contribute up to $55,000 to a solo 401(k) or SEP plan in 2018.
Make Your Savings Automatic
It is easier for you to save if you don’t have to think about it. One way to do this is to set up automatic savings.
For example, Merrill Edge allows people to set up automatic contributions to a Merrill Edge IRA from another account at Bank of America, Merrill Edge, or another bank. Other banks also allow you to transfer money automatically from your accounts to IRA accounts. You can check with your bank to find out what it offers.
Cut Back on Your Spending
To have the ability to increase your savings, it makes sense for you to examine your budget and look at areas that you can cut back. You can also look at how you are spending your money and make a plan to contribute any excess to your savings.
Merrill Edge has a cash flow calculator that allows you to see where your money is going and how much excess you have. After using the calculator, you can set up a budget and try to devote the excess to your savings.
Benefit from a Health Savings Account
One way to boost your retirement savings is to contribute to a health savings account (HSA). HSAs are meant for people who have high deductible health plans to help them pay their medical expenses. All the contributions that you make to a health savings account are 100 percent tax-deductible.
In 2018, CBS reports that the contribution limit for a single HSA is $3,450. For a family, the contribution limit is $6,950. The amounts in your HSA does not have to be spent during the year, so you can roll over amounts from year to year. Amounts that remain in your HSA when you reach your retirement age do not have to be spent on medical expenses.
Pay off Your Debts
Paying off your debts can free up more money to save for your retirement. Do not cut back on your savings when you are paying off your debts, however.
Try to start with the debt that charges the highest interest rate and pay more than the minimum on that account until it is paid off. Then, move to the next highest interest rate balance and do the same thing. If you do this, you can pay off all your debts, so you can contribute more money to both tax-advantaged and non-tax-advantaged accounts for retirement.
One caveat is that you should avoid getting new credit cards or charging purchases to your existing credit cards when you are paying off your debts. Otherwise, you will not be able to get out of debt.
Redirect Raises to Your Savings
If you are lucky enough to get a raise from your job, try to divert the difference between your new paycheck and your former paycheck to your savings. This should be fairly painless because you already know how to live on your former income.
Save Your Tax Refund
While most people look forward to receiving their tax refunds with an eye towards making purchases, you might change your frame of mind and choose to contribute your tax refund to your IRA. The IRS lets you do this directly by filing Form 8888 so you won’t be tempted to spend the refund on other things.
Saving for your retirement is crucial. If you do not save enough money, you may find yourself without sufficient funds to pay for your day-to-day expenses.
By following these tips, it is possible for you to retire comfortably when the time comes.
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