Five Ways to Find More Funds for Retirement Savings
Retirement planning is something of a catch-22 – the further people are from it, the more they should be doing to prepare. People just starting out or in their mid-career, however, have many competing financial needs today – house, kids, car, education – that they believe limits their ability to save for tomorrow.
In reality, almost anyone can increase their retirement savings. The trick is to find money in today’s budget that won’t be missed.
Put raises towards retirement before you spend them
Your lifestyle will expand to consume your net paycheck – so raises offer a rare opportunity. Move all (or at least some) of the net increase in your paycheck to retirement savings the moment you get it. If it is automatically withheld, you won’t get used to spending it, and can increase savings without restricting your current lifestyle and budget.
Auto-escalate contributions to catch up painlessly
Take baby steps by increasing retirement savings just 1% per year. Going from saving nothing to putting away 10% or more of your paycheck might be a shock. Start saving whatever you can, and then each year increase by 1% of your salary. The small increase is more tolerable, and you still get to your target savings rate (ideally at least enough to get any employer match offered.) Given enough time, the amount you have at retirement is only a little less than if you started out saving at the higher rate.
Consolidate debt and shift surplus to retirement
Debt consolidation can save you interest and reduce monthly expenses, freeing up funds. If you have multiple credit cards, car or other loans, your monthly minimum payments can add up. Consolidating allows you to reduce that monthly debt payment and possibly pay less interest, freeing up money you can save for retirement.
Ask your employer to remove money before you see it
You won’t miss what you don’t see. Employer-sponsored retirement plans are great because the money comes out automatically you never have to consciously decide to save it. If you have another retirement vehicle, like an IRA, you may be able to have your employer direct money into that account in a similar way.
Adjust tax withholdings to free up funds
Take a closer look at your W-4. That’s the form you use to calculate tax withholdings from your paycheck. If you regularly get a big refund, you are withholding more than you need. Work with an advisor to reduce withholdings and put the bump in your paycheck to retirement.
Saving for retirement is an exercise in budgeting. Some of these tips are easy, and some take a little more know-how. The important thing is to start early. A financial advisor from Alerus can help you work all the angles to find money you can save, and help you select the tools and products that can help you enjoy financial security today and in retirement.