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 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.
Related Article: Get Started With Retirement Planning
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 2017, the most you could put into an employer-sponsored plan is $19,500.
The limits for a traditional or Roth IRA are much lower, at just $6,000. The limit for a SIMPLE IRA is $13,500 but 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 $57,000 annually for 2020 and $58,000 for 2021.
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 year 2020, 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 2020 and 2021. 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.
Tips for Planning for Retirement
- Refresh your budget. Taking a look at your budget periodically and 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. A matching tool like SmartAsset’s SmartAdvisor can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to up to three registered investment advisors in your area. You can then read their profiles to learn more about them, interview them on the phone and choose who to work with in the future.
Photo credit: flickr/Matt Sapaula, ©iStock.com/Geber86, ©iStock.com/PonyWang