We all know that saving for retirement is important. But when life throws unexpected events our way, savings can take a backseat to medical bills, a necessary move, or some other major expense. If you realize you’ve fallen behind, the following strategies can help you catch up your retirement savings.
Increase your earnings. It seems obvious, but we’ll say it anyway: If you can’t afford to save for retirement, then increasing your earnings is one way to accomplish this goal. Taking on a second job, asking for a raise, or starting a home-based side business are common strategies to increase earnings.
Invest bonuses or other windfalls. Yes, it’s tempting to splurge on a vacation or luxury item when you receive a windfall. But if you save that money for retirement, it will be worth a lot more later.
Change your budget. If you can’t bring in more money, then you must re-examine how you spend the money you do earn. Cut some unnecessary expenses out of your budget, and allocate that money to retirement savings instead.
Make catch-up contributions to your 401k. After age 50, you can make larger contributions to your 401k each year. This year, you can contribute an additional $6,500 to your 401k, while enjoying the same tax benefits.
Make catch-up contributions to your IRA. The catch-up contribution rule applies to IRAs, too. You can stash an additional $1,000 of pre-tax earnings each year after age 50, or $1,000 post-tax earnings if you’re using a Roth IRA.
Consider a health savings account. If you’re already maxing out your retirement contributions, a health savings account might provide a back-door way to set aside money for use in retirement. If you’re enrolled in a low-premium, high-deductible healthcare plan, you can utilize a health savings account. If you don’t use all of the funds in the account each year, you can roll it over to the next year. You can even access this account to pay for healthcare expenses in retirement!
If you feel concerned about the status of your retirement savings, call us to discuss your situation. We might be able to identify additional strategies to help you catch up, and to eventually reach your retirement savings goal.