Saving for retirement is not one-size-fits-all, and not every person’s financial circumstances are the same, causing some people to get a later start in life than others.
If you’re someone who’s getting a late start with retirement savings, consider the four strategies below to help you catch up.
Maximize 401(k) Contributions
Every year, the Internal Revenue Service (IRS) determines a maximum contribution limit for retirement accounts like 401(k) plans. In 2023, the maximum is $22,500 for participants, and while the limit typically increases to account for inflation, it’s important to check the IRS website every year to ensure you’re maximizing your savings.
To determine how much you should deduct from your paycheck every month, use financial calculators to help you estimate how much you can afford. While it’s important to maximize your contributions, especially when playing catch up, it’s equally important to make sure you can afford it.
If you need some extra wiggle room in your budget, find ways to decrease spending so you can maximize earnings, including reducing subscriptions, dining out less, and other non-essential spending. Tools like the 50/30/20 rule can help you determine what is considered essential and non-essential, and can serve as a guide for budgeting your income.
Open a Roth IRA
A great way to boost your retirement savings is through a Roth IRA. These individual accounts allow you to contribute after-tax dollars, meaning earnings grow tax-deferred through retirement.
Roth IRAs are also a great option if you’re looking for enhanced flexibility with your account. Unlike an employer-sponsored 401(k) plan, Roth IRA participants can simply enroll online and start contributing funds, as well as managing a wide range of investment options, such as stocks, bonds, real estate and more.
While the accounts are subjected to IRS maximums – $7,000 in 2024 – they provide a solid way to save additional funds for the future.
Again, use financial calculators to help you determine how much you can afford to contribute, but if possible, you should be maxing out the full contribution each year.
Take Advantage of Catch-Up Contributions
If you’re over the age of 50, the IRS allows 401(k) and IRA plan participants to save extra funds each year to catch-up on retirement savings.
As a 401(k) participant, you can deposit an additional $7,500 in catch-up contributions. This amount changes annually to account for inflation, so the additional funds can go a long way in helping you establish and grow your retirement fund.
If you have a Roth IRA, you can make an additional deposit of $1,000 annually to make up for lost time. If you maximize contributions, along with the catch-up contribution, that’s an additional $8,000 in your Roth IRA each year, adding up to a nice nest egg by the time you reach retirement.
Learn more about catch-up contribution eligibility.
Consult With a Financial Advisor
If the world of retirement savings is overwhelming, or you’re not sure where to start, you always have the option to consult with a financial advisor to help you get your finances on track to meet your goals. You can also ask your existing plan management company – such as Slavic401k, Fidelity, Merrill Lynch, or others – if they provide advising services to their participants. You can schedule an appointment with a Slavic401k financial advisor here.
If your accounts are employer-sponsored, reach out to your HR team to see if they can connect you with an account representative.
It’s important to understand your needs before vetting advisors you want to work with. This will help you keep management costs down, while still working towards your goals. Consider the following:
- Which services do you need? Account management, investment guidance, etc.
- What kind of certifications do they have? If you’re looking for financial planning assistance, you want to make sure you’re working with a registered CFP.
- Verify the financial planner’s fee structure so you aren’t surprised with invoices in the future. Make sure you include their fees in your retirement savings budget so you can plan appropriately.
NerdWallet provides tips and tricks for finding the perfect financial planner that aligns with your needs. Learn more here.
It’s important to save for the future to ensure you can afford everyday costs, travel, home and vehicle repairs, medical expenses, and more when you stop working. Utilizing catch-up contributions, maximizing savings, and getting help along the way will all help you ensure your financial future is stable and secure.
