Actionable Ways to Boost your Savings Before Retirement
Nearly 40% of today’s retirees have little to no retirement savings. While Social Security is there as a safety net, there is no question making ends meet in retirement will be a challenge for them.
So even if you didn’t start your retirement savings way back in your twenties, the good news is that every little bit counts and today is a great day to start working toward a better financial future.
Let’s look at a few ways you can boost your savings in the years before you retire.
Downsize Your Lifestyle
You may be in the habit of spending most of your paycheck. However, it’s relatively easy to trim your spending by simply looking for opportunities. Consider moving to a smaller home or apartment to reduce your mortgage. If you prefer not to move, could you find a roommate to rent out one of the bedrooms in your home?
Another area where many individuals can reduce spending these days is on their cable bill. With options like Netflix and Youtube TV, you may be able to easily trim $100/month on your television spending.
Most people also find that they spend quite a bit of money on entertainment and going to restaurants with friends and co-workers. How much could you save if you committed to bringing your lunch from home to work every day for three months? Look for these opportunities and then commit to reducing your lifestyle expenses wherever you can.
Max Out Your 401K
Now that you’ve reduced some of your spending you can afford to take home less money. So, if your employer offers a 401K, you want to take advantage of that as soon as possible. A 401K plan offers you an easy way to automate your retirement savings because your employer can take your contributions out of your paycheck before you even receive those funds. You won’t miss what you don’t see.
Many employers offer to match your contributions up to a certain limit each year. This is free money from your employer going straight toward your retirement, so you want to contribute at least enough money to max out the employer match. In 2019, the maximum you can contribute is $19,000 for people under age 50, but people over 50 can contribute an additional $6,000 per year.
You may not be able to hit that maximum limit in the first year or two that you begin saving into your 401K. However, you can work toward it. When you get your next pay raise, put that entire increase into your 401K instead of taking that money home. This is a great way to build up the amount you are putting away for retirement each year.
Pick up a Side Hustle
It’s never been easier to earn extra income than it is today. The internet has opened up whole worlds of opportunity that people didn’t have even just 20 years ago. Consider pet-sitting or dog-walking in the evenings or on the weekends. Sign up with Uber or Lyft and you can get paid to help others with ride-share in your local area. You can even tutor students online in areas where you have expertise.
Earning even just an extra $200/month can add up over time if you commit to saving the money and letting compound interest work its magic. Use the money to build up your emergency savings in a high-yield savings account or contribute it to a Roth IRA so that it will be non-taxable when you take it out during retirement.
Plan to Delay Social Security
Although you can sign up for Social Security income benefits as early as age 62, you will significantly reduce your monthly benefit by doing so. Working a few years can benefit you twice. First, you’ll continue to save some of your earnings into your 401k and/or IRA while you are still working. Second, you’ll give that Social Security benefit time to grow.
People who wait until their Full Retirement Age will get 100% of their earned benefits and you’ll continue to increase that benefit by 8% per year for every year that you wait after that. Delaying until the maximum age of 70 means you’ll be taking home the highest amount possible.
Although you may need to play some catch-up on retirement savings, the fact that you recognize that you need to be saving more is the first step toward a better financial future. Plan to start with one or two of the steps mentioned here and then working on adding others as you go.
Danielle is a regularly writes for many online publications, including Forbes, where she is a member of the Finance Council. A TCU journalism graduate and former magazine editor, she enjoys sharing her knowledge. You can see more of Danielle articles at daniellekroberts.com
