Are you among the millions of workers who have fallen behind on retirement savings?
Many workers have not made a serious plan to save for their golden years. The pandemic, with job losses and income uncertainty, is making it even harder.
If you can, start turning that situation around now. Money Talks News talked with financial experts to gather tips on how to catch up when you are far behind.
Even if you can’t add to retirement savings at the moment, read on to plan for how you’ll tackle this shortfall when you’re back on your feet financially.
1. Re-examine your budget
If you need more money for retirement savings, the first place to find that cash is by making changes to your budget.
“Scrub your budget to ensure all dollars are identified and working for you,” Skip Fleming, a Certified Financial Planner and founder of Lodestar Financial Planning in Colorado Springs, Colorado, tells Money Talks News.
Fleming urges you to reduce or cut expenses that prevent you from achieving goals.
“Some things I see in a typical budget that are often overlooked include the high-priced bundled cable bill, gold-plated cellphone plans that are not used, dining out several nights every week and borrowing money to pay for a vacation,” he says.
- One easy way to start tracking spending while creating a budget is to use a software program. Money Talks News’ partner, YNAB (short for "You Need A Budget"), offers one.
- We have step-by-step budgeting directions, too: “Resolutions 2020: Budget Your Way to Financial Goals.”
2. ‘Catch up’ your 401(k)
Your 401(k) misses you. It’s time to give it a little extra attention.
Fortunately, Uncle Sam has the perfect way to make up for years of neglect.
“If you are over 50, be sure to take advantage of the ‘catch-up contribution’ in your 401(k),” Michele Clark, a Certified Financial Planner and senior portfolio manager with St. Louis-based Acropolis Investment Management, tells Money Talks News.
Here are the basics for 2020:
- The base limit for contributions to workplace retirement accounts is $19,500. In addition, starting at age 50, workers with a 401(k) plan can contribute an extra $6,500 per year.
- If you use an IRA — either traditional or Roth — you can contribute $6,000, plus an extra $1,000 starting at age 50.
- “These Retirement Account Limits Just Increased” has details and lists the account types covered by these rules.
- Money Talks News founder Stacy Johnson’s “The Only Retirement Guide You’ll Ever Need” discusses 401(k) strategies and many other important retirement details.
3. Exploit every investment opportunity
Sure, you can invest in your 401(k), and you should, at least with enough to get full employer matching funds, Nola Kulig, a Certified Financial Planner and founder of Kulig Financial Advisors in Longmeadow, Massachusetts, tells Money Talks News.
But don’t stop there.
Some employers also match contributions to a health savings account, which can be a great hidden way to save for retirement. Check it out.
“Then, I would maximize IRA contributions — Roth or traditional — depending on what is possible given income,” Kulig says.
If you’re fortunate enough to have money left over, invest it in a taxable account.
4. Amp up your earnings
If you are behind in saving for retirement, you might need to boost your earnings faster. To earn more income, Kulig suggests considering:
- Changing employers
- Getting training to update skills
- Finding a side gig
“If income does not grow over time, it is difficult to have savings strategies accelerate retirement success,” Kulig says.
For inspiration, check out “107 Easy Ways to Make Extra Cash.”
5. Be smart with raises and windfalls
Congratulations on the raise! You’ve worked hard to get it. Now, it’s time to make it work for you.
“When you get a raise, give half of it to your ‘Now Self’ and half of it to your ‘Future Self,'” advises Clark.
For instance, if you get a 4% raise, split the amount: Put 2% into a checking account and 2% toward retirement savings.
Diverting 2% from your “Now Self” helps prevent lifestyle creep, as can happen when you use newfound money to increase your lifestyle today instead of saving for tomorrow.
Put any work bonuses, tax returns and even rebates to work building wealth, too. “Later, you will be so glad you did,” says Clark.
6. Minimize spending
For many people, this is the most challenging of the changes suggested by our experts. It is also likely the most important, Margot Dorn, a Certified Financial Planner and founder of Dorn Financial in San Diego, tells Money Talks News.
Not only does minimizing spending increase your savings, it also teaches you to live with less. “If they learn to live more modestly, they will also not need to save as much to continue their lifestyle in retirement,” Dorn says.
Not sure where all your money is going? To find out, track your spending, Andy Tilp, a Certified Financial Planner and founder of Trillium Valley Financial Planning in Sherwood, Oregon, tells Money Talks News.
“List all the expenses and track them over time,” he says. “Once you know where it goes, then you have the information necessary to see if there are places where spending can be diverted to savings. Otherwise, it’s a guess.”
7. Make a ‘mortgage payment’ after the house is paid off
If you’ve worked hard to pay off the mortgage, congratulations. What are you going to do with all the money you used to earmark for your mortgage payment?
“Save that money, don’t spend it,” Clark says. Put it in an investment account to tap for retirement spending.
Use the same strategy when you pay off a car loan and watch your wealth grow.
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.