If you feel behind, don’t fret. There are several ways you can contribute to your retirement even if you’re getting a late start. When it comes to retirement funding, every dollar counts.
How to Catch Up on Retirement Savings
Updating your financial habits to help you save for retirement doesn’t have to break your budget.
1. Increase Your Contribution by 1%
Whether you have retirement savings through work or a personal account, try to slowly increase your contribution when you can. For many, this is most easily done annually around merit increase season. If you receive a 3% pay bump and you up your retirement contribution by 1%, you’ll still see a little extra in your checking account while also saving more for the future. Continue to do this each year until you reach the maximum contribution amount.
2. Take Advantage of Tax Deductions
The government gives retirement savings a sign of approval, and by doing so you’re eligible to defer tax deductions when contributing to a traditional IRA. This is because when you withdraw funds later in retirement, the income will be taxed then. This means as you contribute, the amount will be reduced from your taxable income.
Given that future taxes could be higher, you could also opt for a Roth IRA. In this case you’ll pay taxes upfront as income, but when it’s time to withdraw in retirement it will not be taxed. Depending on your financial situation there are benefits to both, and keep in mind that you don’t have to pick one or the other. You can actively contribute to both IRA types.
3. Rebalance Your Portfolio
Depending on the market, you may want to adjust your portfolio. This can be done by opting for a more aggressive or conservative investment approach. If you’re wanting to switch strategies, you can do so all at once by selling assets and using the proceeds to purchase new ones or by slowly selling and purchasing. Keep in mind that the proceeds you make on investments are taxable, so you’ll want to ensure you have funds ready when it comes tax season. Consulting with a financial advisor may be beneficial as they can help walk you through your options and the implications of each.
4. Update Your Savings Goal
As your life changes, so does your savings goal. A change in marital status or job are both reasons to reassess your retirement savings goals along with things like any additional family members or medical needs. The amount of money you’ll need to save for retirement will need to be updated to reflect your life changes.
5. Use Your Plan’s Features
If you contribute to a 401(k) plan through your employer, make sure you’re taking advantage of the employer match offered. Most companies that offer a 401(k) match will contribute up to a certain percentage of your salary amount. Keep in mind in most cases there’s a certain length of time you must stay with the company to be 100% vested. This means if you leave the company before a certain timeframe, they’re able to reclaim a portion or all of their employer match.
While it’s important to read the fine print of your work-sponsored 401(k), it’s important to apply this analytical skill to all your investment and retirement plan details.
You Have Big Goals – We’re Here to Help
The path to retirement isn’t always clear. Connect with a Farm Bureau Financial Advisor who is available to help you understand the risks and rewards that come with investments and retirement savings.