Worried that you’re behind on your retirement savings? You’re not alone. According to a study from Gallup, more than half of Americans are worried that they won’t have enough money to fund their retirement. In fact, Gallup has conducted a study on Americans’ top financial worries every year since 2000. Retirement has topped the list as the No. 1 financial concern in every study.1
A separate study from the Economic Policy Institute suggests many Americans have reason for concern. The study found that half of Americans have no retirement savings. The average savings balance is just over $95,000, but the median balance is only $5,000.2
If you’re behind on your savings, there are several steps you can take to catch up. You could work to a later age, giving yourself more opportunity to save. You could scale back your retirement plans, reducing your anticipated spending. You could even work part time in retirement.
However, the most effective step may be simply to save more money each year. The more money you contribute to your 401(k) or IRA, the more you have to invest. That leads to greater compounded growth and significantly more money when you retire. Having trouble saving more? Below are a few tips to help you increase your savings:
Maximize your employer’s match.
Want an easy way to increase or perhaps double your 401(k) contribution amount? Meet the contribution level needed to maximize your employer match. Many employers offer matching contributions as a benefit and to help their employees save for retirement. For example, an employer may match contributions up to a certain threshold, such as 3 percent of salary.
You can take advantage of this benefit by contributing enough to get the full employer match. For example, if your employer matches up to 3 percent and you contribute that amount, your contribution plus the employer’s totals a 6 percent contribution. The employer match can be a powerful tool to help you save.
Use a traditional or Roth IRA.
Your 401(k) doesn’t have to be your only savings vehicle. You can also contribute as much as $5,500 to an IRA in 2018.3 A traditional IRA allows you to potentially deduct your contribution on your current-year taxes and grow your money tax-deferred while it’s in the account. However, distributions from the account are taxable. A Roth IRA offers tax-free distributions and tax-deferred growth, but no upfront deductions for contributions.
Take advantage of catch-up contributions.
If you’re age 50 or older, you can make additional contributions to your 401(k) and IRA. These additional amounts are known as catch-up contributions, and they’re designed to help those who are approaching retirement save more money.
In 2018 the normal contribution limit is $18,500 for your 401(k). If you are age 50 or older, however, you can contribute an additional $6,000, for a total contribution of $24,500. The normal IRA limit is $5,500, but those age 50 or older can contribute an additional $1,000, for a total allowable contribution of $6,500.3
Put your savings on auto-pilot.
One of the biggest challenges many people have with saving is the problem of choice. Given the choice between saving for the future or paying for a more immediate expense, many will choose the immediate expense. They justify this choice by believing they still have plenty of time to save for the future.
You can eliminate this problem by automating your contributions. Your 401(k) contributions are automatically deducted from your paycheck, so it’s easy to set those savings on autopilot. However, you also may be able to set up automatic IRA contributions from your bank account or even your paycheck. If you make your savings automatic, it may be easier to save more money.
Ready to give your retirement savings strategy a boost? Let’s talk about it. Contact us today at Grand Canyon Planning Associates. We can help you analyze your needs and implement a strategy. Let’s connect soon and start the conversation.