7 Ways to Increase Your Retirement Contributions

April, 09 2020 by Karen Thomas-Brandt, EA

For some of us, retirement seems like an eternity away; for others, it is just around the corner. No matter which group you fall into, it is never too early to start saving for the future. “But how,” you might ask. “I can barely pay my bills as it is. How can I afford to put money away for retirement?” Good question, but a better question might be, how can you afford not to?

Consider this: If two people save $100 a month for retirement, but one starts at 25 and the other starts at 35, the early saver will have nearly twice as much in their bank account by age 65. Twice as much! You don’t have to start big; you just need to start. Below are some suggestions for getting the ball rolling.

Start today: There is no time like the present. Start with a small amount, perhaps $20 per paycheck. Instead of eating out for lunch or grabbing a coffee out, put that money away. You will be glad you did.

Set-up automatic contributions: Have your retirement contribution directly taken out of your paycheck. It is much easier to put money into a retirement account before it ever hits your checking account. Alternatively, you can have contributions taken directly from your bank account each month. I recommend doing it shortly after you get paid before you have time to “accidentally” spend it.

Take advantage of any employer match: At the very least, contribute enough to your employer-sponsored plan to get your full employer match. If you are fortunate enough to have an employer who matches an employee’s contribution, take full advantage of it! If your employer is willing and able to match, say, the first 6% of your contribution, then contribute 6%. It is essentially free money!

Start an IRA: If you don’t have a retirement plan available through your employer, or if you are looking for more retirement savings options, consider putting money into an Individual Retirement Account (IRA). Depending on your income level, you may be able to take a tax deduction for contributions to a Traditional IRA, and earnings will be tax-deferred until you begin taking distributions. Alternatively, you could start a Roth IRA. Unlike Traditional IRAs, Roth IRA contributions are not tax deductible, but earnings can grow tax-free.

Take advantage of catch-up contributions: If you are 50 years of age or older, you can contribute more money to an employer-sponsored plan and an IRA. Catch-up contributions might be especially helpful if you were a little late getting into the savings game.

Save your raise: Each time you receive a wage bump, put part (or all) of it into retirement savings. You can’t miss what you never had.

Remember annual limit adjustments: For 2020, the annual limit for a 401K contribution is $19,500, with a catch-up contribution limit of $6,500, and the IRA contribution limit is $6,000, with a catch-up contribution limit of $1,000. These limits change annually, so be sure to adjust your contribution amounts each year to account for the increases.

It is never too early to start planning for, and saving for, retirement. You can probably think of many reasons not to save money, but the longer you put off saving, the more it will set you back in the long run. It doesn’t matter the amount. Start small. But start today.