Have you ever thought you need to increase how much you’re putting into retirement, only to worry about all the other priorities vying for your dollars? You’re not alone. Many people know, and want, to contribute more to their retirement, but it doesn’t always seem feasible. The good news is that with a little planning to cover other expenses, you can stay on track and fund your retirement like you want and need. The following tips and tricks can help you to win the battle for funding your retirement.
Get Focused
It’s hard to know if you’ve gotten to where you want to go if you don’t know what the destination was to begin with. So begin with the end in mind. Envision all the things you want or need. Don’t worry about listing them in any certain order now, just brainstorm and write it all down. ‘Wants’ could be fully funding a college education for your kids or buying a new car. ‘Needs’ are often funding your retirement and having enough money set aside to cover health care costs later in life. Remember to write down things that may come up unexpectedly too, such as appliances going out, or having to help take care of an aging loved one who needs help.
Research What it All Costs and Create a Plan of Action
Once you have your comprehensive list, start looking up what everything costs, if you don’t know the cost already. When you get done and see the numbers, it may seem like an insurmountable figure. That’s when you need to start narrowing down how you’re going to attack each item. Start by working on the ‘Needs’ list first. If you want to save $100,000 for the kids’ education, how much do you need to contribute monthly based on their ages? When you add in compound interest it may be less than you think. Calculate each item and how long it will take you to reach that goal if you contribute to it monthly. If you feel overwhelmed doing this or it feels too out of reach, consider working with one of our Financial Advisors. They can help with cost estimates for every goal you have and map out a plan of attack to help you reach all your goals.
Get a True Number of What You’re Able to Save Each Month
If you’re already using a monthly budget, you’ve got all the numbers you need. If you don’t, you’ll need to figure out what you have to work with. Start by writing down how much money you bring home every month, then add up all of your monthly expenses. The difference is how much you can start funding your goals with. If you want to fund the goals faster, you’ll either need to find ways to make more money or you’ll need to cut back on some of your expenses. It can also pay off to look at your last three months of bank and credit card statements. That will give you a better picture of where your money has really been going.
Prioritize Your List
Take some time to look at your list. What’s your number one priority? Start there and work your way down. Some of the goals will be more important to start now while some can wait. For example, if you want a new car but don’t need a new car, it should be lower on the list. In most cases, fully funding your retirement should be at the top of the list. Why? Because you want to get the most out of compound interest and the sooner you start, the better position you’ll be in come retirement time. For some, this may seem counterintuitive. They may think that paying for their child's college should come first because that’s going to happen before retirement. However, once you’re in retirement, you will have a fixed income and you don’t want to have to borrow money to live on because you didn’t save enough.
Out of Sight, Out of Mind
When your paycheck hits the bank, you know how much you have to spend. If you have money taken out of your check before it hits the bank, you’ll likely not even notice. Setting up automatic payments for investment vehicles means once you’ve set them up, the work is all done. You can do this with Health Savings Accounts (if you have a high deductible plan that is eligible), a 529 account for education costs, or for a ROTH IRA.
When it comes to your retirement plan at work, make sure you are contributing enough to get the match from your employer. If you don’t, it’s like leaving money on the table. Most financial professionals recommend people save between 10%-15% for retirement annually.
When to Increase Your Retirement Savings
Once you meet your financial goals, the extra money you free up can go right into your retirement account. If you’ve been putting that money towards something else, you won’t even miss it. And, if you’re over 50, the IRS allows what they call “catch up” contributions. You can put an additional $6,500 (in addition to the $19,500 maximum) towards your workplace retirement plan.
Update Your Retirement Income Plan Routinely
It would be nice if you could set up your retirement and just forget it, but that’s not a good idea. You need to occasionally re-prioritize your goals and determine if your future income needs are still the same. Do this at least yearly. Many investment professionals recommend an aggressive, more risky strategy when you’re younger and can easily bounce back from temporary losses. They recommend moving into more conservative investments when you are near retirement age. At the same time, you’ll also want to revisit your income streams and adjust accordingly. The closer you get to retirement age, you’ll have a better picture of whether or not you can delay taking Social Security benefits in order to receive more money later in time. It’s also a good time to consider saving for an alternate income source, such as an annuity.
