Many Americans admit they are behind on saving for retirement. According to Northwestern Mutual’s 2018 Planning and Progress Study, 78% of Americans are concerned about not having enough saved for retirement, and another 66% think they will outlive their savings. Shockingly, another 21% have absolutely nothing saved.
There is so much information out there about how much to save for retirement, how to do it correctly and when to start. It can be extremely overwhelming, especially trying to plan cost of living increases and longer life expectancies.
Here are eight ways to successfully save for retirement:
Employer 401(k) Plans
The easiest way to get the ball rolling on saving for retirement is to take advantage of benefits provided through your employer such as a 401(k) plan. This is money you can have automatically deducted from your paychecks to go towards your retirement. In most cases, an employer will have a matching program to reward you for saving. It reduces the pressure of making consistent contributions towards your retirement nest egg because it’s money you don’t see. Even better, contributions are made with pre-tax dollars and your money grows tax-free.
Another great way to start saving for retirement is to invest in a Roth IRA. A Roth IRA is a retirement savings account that allows you to pay taxes upfront on your contributions. Withdrawals after age 59 ½ are tax-free. In 2019, the maximum IRA contribution is $6,000 and $7,000 if you’re age 50 and up.
Health Savings Accounts
One of the biggest mistakes people make when they start saving for retirement is not considering healthcare costs. They believe Medicare is free and will cover everything at 100%, so they fail to put money aside for healthcare costs. Since Medicare is not free and doesn’t cover costs at 100%, people should take advantage of health savings accounts (HSA).
Enrolling in an HSA allows you to efficiently save and pay for qualified medical expenses and health insurance deductibles. You can even invest pre-tax money in your HSA in stocks, bonds and mutual funds to further maximize your savings. An HSA functions as a traditional IRA the moment you turn 65 which means you can use that money for anything you like—and all withdrawals are tax-free.
Pay Off Debts
Not taking care of debts prior to retirement will suck up your savings later when you are on a fixed income. In order to efficiently save for retirement, you must also protect your retirement funds. When tackling existing debt, try the snowball debt recovery method. Attack your smallest debt first and throw money at it until it’s paid off. Then, move on to the next smallest debt, and so on and so on. Paying off that first debt will give you steam and help you attack the rest of your debt more aggressively.
Passive income is a great way to earn more money to boost your retirement savings. One of the best ways to make passive income is to invest in real estate. Buy some rental property and rent out to tenants to increase your income. Make sure you do due diligence and invest in properties with growth potential and a steady stream of renters.
Look at what you currently spend your money on and try cutting costs where you can. For example, cancel streaming services that you never use, reduce your cable package (if you have cable), reduce monthly spending on groceries, etc. The money that you save month-to-month not only will put more money in your pocket, it will also help you prepare for a more cost-efficient lifestyle in retirement.
Come up with a price tag for the lifestyle you want in retirement. Really consider how you want to live, potential medical bills, debts that need to be paid off, and how much money you’ll get from pensions and Social Security. Utilize the many online tools out there to help you figure out a budget so you can estimate how much you will need to save.
Consult an Expert
If you are someone who struggles with money and can’t quite practice good saving habits for retirement, seek help from a professional. A financial planner can help make a savings plan that is completely tailored to you, your budgets and current expenses, and lifestyle goals in retirement—and help you stick to them.