When you’re trying to build your nest egg, it’s best to start setting money aside as soon as possible. The longer you put it off, the less time your assets have to grow. If you wait too long, you risk not having enough cash to see you through your golden years. Getting a late start isn’t ideal, but it’s still possible to build a comfortable retirement if you’re savvy about planning. Here are a few tips to get your financial future on the right track when you’re behind the eight ball. Also, consider finding a financial advisor to help you follow through on all of these tips.
Estimate What You’ll Need
Studies show that the majority of Americans are underprepared for retirement. Not only are workers failing to save enough but too few people have a realistic idea of how much money they’ll need to cover their expenses once they leave the workforce for good. Knowing what your target number is makes it easier to figure out how much you need to be saving in order to reach your goal.
Look at Your Savings Options
There are lots of ways to fund your retirement and it’s easy to feel overwhelmed if you’re just getting started. Participating in an employer-sponsored plan, such as a 401(k) or 403(b), is one of the easiest ways to save, especially if your company offers matching contributions.
If you’re not eligible to participate in a plan through your company, you can always chip in money to a traditional or Roth IRA. Traditional IRAs offer tax-deductible contributions while Roth IRAs give you a tax break when it’s time to start making withdrawals. Self-employed individuals and small business owners also have additional options in the form of a SEP or SIMPLE IRA.
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Know Your Limits
The IRS has different guidelines concerning how much you can put into each type of retirement account every year. It’s important to know what the limits are to make sure you’re maxing out your plan. For tax year 2022, the most you could put into an employer-sponsored plan is $20,500 or $27,000 if you’re 50 or over. For tax year 2023, the limit is $22,500 or $30,000 if you’re 50 or over.
The limits for a traditional or Roth IRA are much lower, at just $6,000 for 2022 and $6,500 for 2023. The limit for a SIMPLE IRA is $14,000 in 2022 and $15,500 in 2023. However, if you have a SEP IRA, you can put in a little more. Currently, the IRS allows you to sock away 25% of your net self-employment income, up to a max of $61,000 annually for 2022 and $66,000 for 2023.
Take Advantage of Catch-Up Contributions
If you’re older than age 50, you may be feeling even more pressure to ramp up your retirement savings. Fortunately, you may be able to make catch-up contributions to your retirement fund, depending on the type of account you have. For tax years 2022 and 2023, you’re allowed to save an additional $1,000 in your traditional or Roth IRA. The catch-up contribution limit for 401(k) plans, 403(b) accounts or a 457(b) is $6,500 in 2022 and $7,500 in 2023. You can put an extra $3,000 in your SIMPLE plan but there are no catch-up contributions allowed for a SEP IRA.
Cut Costs Now
The closer you are to retirement, the more important it is to start getting your financial ducks in a row. Minimizing your expenses will free up additional cash that you can squirrel away in savings. It can give you some breathing room if you’re expecting your income to drop once you retire. While you may not need to do something as drastic as sell your home, getting rid of high-interest debt and looking for ways to save on your everyday bills can make a big difference in how long your nest egg will last.
Retirement Planning Tips
- Refresh your budget. Taking a look at your budget periodically with fresh eyes can help you easily assess what your priorities, wants and limits for retirement are. Get some new insight on your monthly spending using our free budget calculator.
- This might also be a good time to talk to a professional financial expert about your money matters. A financial advisor can help you determine how to maximize your retirement savings as you play catch up. SmartAsset’s free tool matches you with up to three vetted financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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