Do you need to increase your contributions to your retirement plan? Here’s how. | Smart Change: Personal Finance
Saving for retirement is an important thing. But let’s face it – it’s not always easy or fun.
To fund your 401(k) or IRA consistently, you’ll likely need to give away something. That thing could be a nicer car, a much-needed vacation, or home maintenance that you want to outsource.
But the truth is, planning for retirement on Social Security alone is a bad idea. These benefits will only replace about 40% of your salary if you’re middle-income, and most seniors need more than 70% to 80% of their pre-retirement income to manage their expenses well.
This is especially true these days given the way inflation is rising. In fact, many seniors who get all or most of their income from Social Security right now are struggling financially thanks to high costs at the pump, supermarket and just about everywhere. But there is no doubt that those who have savings can benefit from it better off.
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If your retirement savings aren’t progressing the way you think they should, you’re in good company. In a recent Paychex survey, 73% of workers admitted they should save more for retirement. But 79% also said they couldn’t increase their 401(k) or IRA contributions.
If this is the boat you’re in, you may have more options to increase your savings than you think. Here are some to explore.
1. Make sure to claim your full 401(k) match
Are you contributing enough to your 401(k) to take full advantage of the Employer Matching Program? This is probably the easiest thing you can do to increase your savings, so see what your matching incentive looks like and shift your spending as needed to completely disable that match.
Your employer will probably match 100% of contributions up to $3,000, and you’re currently putting $2,400 into your 401(k). If you can only increase your contributions by $50 a month, you will effectively double that effort by claiming your full match.
2. Get a side hustle
The gig economy is booming these days, so there are plenty of flexible side jobs available that can give you a good boost in income. And since this is money you’re not used to living on, you should be able to use all of it to fund your retirement savings.
Remember, if you put money into a 401(k) or traditional IRA, your contributions go on a pre-tax basis. So if you earn $2,000 from a side job, you can throw away the entire $2,000 in your retirement plan.
3. Give up one little thing (or more, if you wish)
You may have heard that giving up the coffee you buy at the store every day will help you retire from a millionaire. Perhaps this is not true. But giving up a small luxury can help you increase your savings dramatically.
Imagine you decided to start making your own coffee, thus freeing up $50 per month for your retirement savings. If you sneak an extra $600 into your 401(k) or IRA this year, leave that money alone for 30 years, and invest it at an average annual return of 8% (which is just below the stock market average), boost your nest egg by 6000 dollars.
True, you might think that $6000 is not a huge amount of money in a retirement grand scheme. To be fair, this is not so. But this is only the cutting effect One Account for One general. And if you’re willing to cut more expenses for one year or several years, the impact could be much greater.
It is important to have income outside of Social Security once you enter retirement. If your nest egg needs work, follow these tips to boost your savings — and avoid financial stress later.
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