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Retirement is one of the most significant financial pursuits, requiring diligent planning and disciplined savings over many years.
Establishing good personal finance habits learning about the different types of retirement plans available is an excellent first step. However, there are ways to accelerate your progress and strengthen your financial security, regardless of your retirement goals.
This article will dive into five tips to save more for retirement and hit your goals faster.
Several retirement accounts offer tax advantages, helping you save more for retirement now and potentially pay less in taxes during retirement.
Your workplace plan, such as a 401k, is a good place to start. Contributions are pretax and taken right out of your paycheck. They also offer high contribution limits to help save more. Using a 401k calculator can help you determine the optimal amount to save monthly.
After that, look to individual retirement accounts (IRAs). There are two types:
Many employers offer matching bonuses on your workplace retirement plans. This is essentially free money, so you should strive to at least hit your matching bonus each year.
Employers often match around $0.50/dollar or dollar-for-dollar up to a certain percentage of your salary. For example, if your company offers a $0.50/dollar match on up to 6% of your salary and you earn $5,000 monthly, you can earn a $0.50/dollar matching bonus on up to $300 in monthly contributions. You receive an extra $150 per month, helping you save more.
Whether you get a raise or switch to a higher-paying job, it’s vital not to let all your new income go toward lifestyle expenses. Make sure to increase your contributions as your income rises.
To do this, you should set a monthly savings goal based on a percentage of your income rather than a dollar amount. A general rule of thumb is to save 15% of your income for retirement.
For example, if you earn $5,000 per month, 15% of that amount would be $750 going toward retirement. If you find a new job paying $5,500, you would increase your savings to $825 to save 15%.
Cutting spending is an easy way to free up more money for retirement savings. Create a budget if you don’t use one already, and look over where each dollar goes.
Identify items you don’t use or value and cut spending in those areas. For example, you may pay for monthly subscriptions you rarely or never use. Downgrading your plan or cutting the subscription out can put money back into your pocket each month for retirement.
If you max out your tax-advantaged accounts, you can open a taxable brokerage account to continue saving and investing.
Taxable brokerage accounts do not offer tax-deductible contributions or tax-free withdrawals. You may also pay taxes on dividends, interest, and selling assets.
However, you invest your funds in a range of assets to potentially grow your wealth faster or earn income. You can withdraw your funds whenever you want, and you may qualify for lower long-term capital gains tax rates on asset sales if you hold assets for longer than a year.
These advantages can be helpful whether you retire early or want to supplement your retirement assets.
Saving for retirement may take some time, but you can speed up your progress in several ways.
Start with tax-advantaged retirement accounts to save more for now and potentially cut your retirement tax bill. Max out your workplace account’s matching bonus, too.
As your income rises, increase contributions by saving a fixed percentage of your monthly income. Cut unnecessary spending to free up more money and consider taxable brokerage accounts if you max out retirement-specific accounts.
Following these tips can help you save more every month, potentially building wealth faster and creating true financial security when you retire.
