C’mon, fess up: Are you among the millions of workers who have fallen behind on retirement savings?
If the latest statistics are accurate, well more than half of America should be sheepishly raising its hand right now.
To be blunt, most workers have never made a serious plan to save for their golden years. Fortunately, it’s never too late to begin turning that sad situation around.
Money Talks News talked to some financial experts to get tips for how to catch up when you are far behind. Here are their eight ways to catch up on your retirement savings.
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,” says Skip Fleming, a Certified Financial Planner with Lodestar Financial Planning in Colorado Springs, Colorado.
Fleming urges you to reduce or eliminate any expense preventing you from achieving your 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.
To get started on a budget, check out “Budget Your Way to Your Financial Goals in 2018.”
‘Catch up’ your 401(k)
Your 401(k) misses you — it’s time to give it a little extra attention.
Fortunately, Uncle Sam has given you the perfect way to make up for all those years of neglect.
“If you are over 50, be sure to take advantage of the ‘catch-up contribution’ in your 401(k),” says Michele Clark, a Certified Financial Planner with Clark Hourly Financial Planning and Investment Management in Chesterfield, Missouri.
In 2018, most workers can stuff up to $18,500 into their 401(k) plans. But if you are 50 or older, you can add an additional $6,000 to your contribution.
Be smart with raises and windfalls
Congratulations on the raise. You’ve worked hard to get it, and now it’s time for it to work for you.
Clark has her own twist on what you should do with a raise. “When you get a raise, give half of it to your ‘Now Self’ and half of it to your ‘Future Self,’ the Certified Financial Planner says.
For instance, if you get a 4 percent raise, split the amount — put 2 percent into a checking account, and another 2 percent toward retirement savings.
Diverting 2 percent away from your “Now Self” will help prevent “lifestyle creep,” when you use new money to increase your lifestyle today instead of saving for tomorrow.
Incidentally, you should also use any work bonuses, tax returns and even rebates to build wealth.
“Put that into your IRA or investment accounts for the future — it all adds up,” Clark says. “Later, you will be so glad you did.”
Exploit every investment opportunity you can
Sure, you can invest in your 401(k) — and you should do so at least enough to get employer matching funds, says Nola Kulig, a Certified Financial Planner with Kulig Financial Advisors in Longmeadow Massachusetts.
But why stop there?
Kulig notes that some employers will also match contributions to your health savings account. As we have written, a health savings account can be a great hidden way to save for retirement.
“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. The more you save and invest now, the better things likely will be for you down the road.
For many people, this is the most challenging change our experts suggested. But it’s also likely the most important thing you can do, says Margot Dorn, a Certified Financial Planner at Dorn Financial in San Diego.
Not only does minimizing spending increase your savings, but 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. “Reducing your lifestyle can be like losing weight. It is difficult for many of the same reasons as losing weight is difficult. Better not to gain it in the first place.”
Not sure where all that money is going? To find out, you’ve got to track your spending, says Andy Tilp, a Certified Financial Planner at Trillium Valley Financial Planning in Sherwood, Oregon.
“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.”
Make your ‘mortgage’ payment even 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 emphatically. “Keep making that ‘mortgage payment’ into an investment account that you can later tap into for retirement spending.”
You can use the same strategy if you pay off your car loan. Take the same amount that you used to shell out for a payment, earmark it for investments and watch your wealth grow.
Amp up your earnings
If you are behind in saving for retirement, you might need to boost your earnings fast. To get 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.
Looking for more ideas? Check out “107 Ways to Make Extra Money.”
Go mega with a Roth
Finally, you might be able to save more than you realize with a mega backdoor Roth.
With this strategy, after-tax contributions — over the standard 401(k) limits — can be rolled into the Roth 401(k). Or, you can take a distribution and roll it into a Roth IRA account, Tilp says.
“This could allow individuals to save up to $55,000, with a good portion going to a Roth account,” he says. “This is even for individuals whose income is above the eligibility limits for a regular Roth IRA.
Tilp says the IRS recently clarified the rules around this program, and now many 401(k) plans are beginning to allow this. But you’ll need to check with your employer.
Also, you might want to sit with a great financial adviser to discuss your options.
How have you saved for retirement? Share your tips in comments below or on our Facebook page.
Learn everything you need to plan your dream retirement
The Only Retirement Guide You'll Ever Need gives you the knowledge you need to retire on your own terms. Sure, you can pay a financial adviser, but this online course gives you total control to create a custom retirement plan around the things that make you happy.
You're going to get expert, personalized advice. You'll have access to the latest tools. And when it's complete, you'll be able to approach your retirement confidently and with peace of mind.
It's time to plan the best years of your life. Let's get started.