If you have reached the grand old age of 50 — or even a few years beyond — you’ve probably had a moment of clarity about your financial future. Perhaps you’ve taken stock of your retirement nest egg and found it a bit wanting.
If so, don’t panic! There is plenty of time to build a kitty for your golden years that will grow into a few hundred thousand dollars of savings — or even more.
Following are six ways to boost your savings efforts so you can retire with a greater sense of security.
Take advantage of the retirement catch-up provision
Uncle Sam wants to add a little extra rocket fuel to your retirement savings efforts. If you are 50 or older, you can take advantage of “catch-up” provisions in the tax code that allow you to contribute more to your retirement accounts.
For example, if you have a 401(k) plan, you can contribute an extra $6,000 per year once you turn 50. If you have an IRA — Roth or traditional — you can add an extra $1,000 to your contribution.
These bigger contribution limits can make a huge difference over time. The amount the government allows you to contribute to these retirement vehicles generally increases as the years roll on. However, for the sake of clarity, let’s say 401(k) contributions are capped at the 2019 levels for the next 15 years: $19,000 annually, with another $6,000 for those who are 50 and older.
Contribute the maximum of $19,000 over 15 years — ages 50 to 65 — and a 7 percent annual return nets you more than $477,000, according to computations on the U.S. Securities and Exchange Commission compound interest calculator.
Contribute the maximum plus the extra $6,000 for 15 years, and you end up with more than $628,000.
Max out on your employer match
We’ve already talked about the huge benefit of contributing the maximum to your 401(k) plan. But even if you can’t contribute that much, at least make sure you are stuffing enough into your 401(k) to get the employer match.
You’ve probably heard it a million times, but this really is free money. Typically, companies will match a percentage of your salary — perhaps 2.5 percent — at something like 50 cents on the dollar. So, if you make $50,000, that’s an extra $625 toward retirement each year that you get for doing nothing but saving a bit more.
And many companies offer matches that are even more generous than the one outlined above.
Sign up for a health savings account
The health savings account — more commonly called an “HSA” — might just be the best hidden secret in the entire tax code. As we have explained previously, an HSA is triple tax-advantaged:
- Contributions can be deducted from your taxes for the tax year during which contributions are made
- Any gains on your contributions compound tax-free
- Withdrawals are tax-free when used to pay for qualifying health care expenses
In other words, you will never owe taxes on money that goes through an HSA, provided that you follow the IRS rules for using the money to pay for qualified health expenses.
Even better, you can again make a catch-up contribution. However, this time you must be 55 or older to take advantage of this catch-up tool, which is capped at $1,000 for 2019.
For more on HSAs, check out “3 Reasons You Need a Health Savings Account — and How to Open One Today.”