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5 Steps To Boost Your Retirement Savings

5 Ways To Boost Your Retirement Savings
U.S. News And World Report
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With a new year underway, it makes sense to think about how you can improve your finances. One of the best things you can do for your future is to make sure you are saving enough for retirement. But the truth is that you probably aren’t tucking away enough, so increasing your retirement account contributions is probably a good idea. Here are five steps you can take to boost your retirement account contributions:

1. Make retirement saving a priority. If you want to increase the chances that you will stick to any course of action, you need to make it a priority. Think about why a comfortable retirement is important to you, and come up with reasons to stick with the plan you are about to make. You need to figure out what you want your money to do for you, if you want to create success down the road. Your very first step should be to give retirement contributions precedence over other spending.

2. Figure out how much you need to save. According to the Employee Benefit Research Institute, more than half of Americans haven’t even calculated how much money they need to save for a comfortable retirement. You need to figure out how much you will need in retirement (there are plenty of online calculators to help you with this), and then figure out how much you should contribute to reach your goal. Once you figure out how much more you need to contribute each month to meet your goal, you can make plans to increase your contributions.

3. Look at your current expenses. Now that you know how much money you should be putting toward retirement, it’s time to find that money. Your first step is to look at your current expenses. Many personal finance experts estimate that the average household wastes between 10 percent and 15 percent of its income each month. Honestly look at where your money is going. Look for the waste. Stop spending money on things you don’t need (and probably don’t want), and put that money toward your retirement.

4. Find ways to make more money. After cutting expenses, you still might not be hitting your mark. If this is the case, look for ways to make more money. This can be through a part-time job, or by starting a side job. You can even look for passive income opportunities. Think about ways that you can add a little more money to your budget so that you can increase your retirement account contributions.

5. Increase your automatic investment. Your best option for making sure that your retirement contributions increase is to automate your efforts. You can probably have your contribution automatically deducted from your paycheck. Talk to your human resources department about how you can increase your regular contributions. If your employer offers a match, this might be a good way to get a little more free money for your retirement. If you can’t have the money deducted from your paycheck, consider setting up an automatic transfer from your bank account to an IRA account. When you have your money automatically diverted to a retirement account, you aren’t tempted to spend it first. Automating the process is one of the best ways to make sure that you “pay yourself first.”

With the right planning and a little determination, you can close your retirement savings gap. Make sure that you are contributing enough to your tax-advantaged retirement account so that later you can retire in comfort.

FMF writes at Free Money Finance, a personal finance site that helps readers grow their net worth. He shares practical tips that have helped him accumulate a significant net worth and can do the same for others.

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Before You Go

8 Ways To Prepare For Retirement
1. Start Saving(01 of08)
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Americans spend an average of 20 years in retirement. If you're not saving, it's time to start. Begin small if you have to, and try to increase the amount you save each month. The sooner you start putting funds aside, the more time your money has to grow. (credit:Alamy)
2. Estimate Your Retirement Needs(02 of08)
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Experts estimate that you will need about 70 percent of your preretirement income -- for lower earners, the figure is 90 percent or more -- to maintain your current standard of living when you stop working. Use this calculator to come up with a ballpark estimate. Research shows that people who try to estimate their needs in advance ultimately save more for retirement. (credit:Alamy)
3. Contribute To Your Workplace Plan(03 of08)
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If your employer offers a retirement savings plan, such as a 401(k) plan, sign up and contribute as much as you can. Your company may kick in a match, and deductions can be automatically taken from your paycheck. Over time, compound interest and tax deferrals can make a big difference in the amount you accumulate. Make sure your plan isn't a lemon by searching the website Brightscope.com. If it falls short, ask the management to do something about it. (credit:Alamy)
4. Learn To Invest(04 of08)
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How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you'll have saved at retirement. Know how your savings or pension plan is invested. Learn about your plan's investment options and ask questions. Put your savings in different types of investments. By diversifying this way, you are more likely to reduce risk and improve return. Your investment mix may change over time depending on a number of factors such as your age, goals, and financial circumstances. Financial security and knowledge go hand in hand. (credit:Alamy)
6. Don't Touch!(05 of08)
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If you withdraw your retirement savings now, you'll lose principal and interest; you might lose tax benefits or have to pay withdrawal penalties. If you change jobs, leave your savings invested in that employer's retirement plan. Or roll them over to an IRA or your new employer's plan. (credit:Alamy)
5. Understand Fees(06 of08)
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The cost of your investments makes a big difference. Index funds are a good option for reducing costs. The Labor Department provides this example: Assume that you are an employee with 35 years until retirement and with a 401(k) account balance of $25,000. If the returns on investment for your account for the next 35 years average 7 percent and the fees and expenses reduce this by 0.5 percent, your account balance will grow to $227,000 at retirement, even with no further contributions. If the fees and expenses are 1.5 percent, however, your account balance will rise to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent. (credit:Alamy)
7. Open An Individual Retirement Account(07 of08)
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You can put as much as $5,000 a year into an individual retirement account (or IRA). Those 50 or older can contribute even more. You can also start with much less. IRAs also provide tax advantages. When you open an IRA, you have two options: a traditional IRA or a Roth IRA. The tax treatment of your contributions and withdrawals will depend on the option chosen. You can set it up so that an amount is automatically deducted from your checking or savings account and deposited in the IRA. (credit:Alamy)
8. Find Out About Your Social Security Benefits(08 of08)
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Social Security pays benefits that are on average equal to about 40 percent of what you earned before retirement. You should receive a statement each year that gives you an estimate of how much your benefit will be and when you can receive it. For more information, visit the Social Security Administration's website or call (800)772-1213. (credit:Alamy)
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