If you haven’t been saving as much as you would like for retirement because of the global health pandemic or other life challenges, don’t panic. You can make changes starting today to grow your nest egg for a more financially comfortable tomorrow.
Remember, saving for retirement is important because Social Security was never meant to to be our sole means of support once we hit our golden years. The estimated average Social Security retirement benefit in 2021 is $1,543 a month, according to the AARP. Generally, those who earn more in their lifetime should be able to receive more, but only up to a certain point. So it’s important to tuck away as much as you can while you’re working.
Get on a spending plan
First things first. To help find the extra money you are going to begin devoting to your retirement savings, you need to have a budget. And if you aren’t already living on a budget — which some people call a spending plan — it’s time to start. It doesn’t have to be overly complicated or time consuming. But you owe it to yourself to block off some time on your calendar, take a deep breath and decide you are going to go there. And by there I mean taking a close look at your income and expenses to figure out where your money is going every month.
Eliminate and automate
Once you determine how much you have left after paying your household bills, look at each expense category and ask yourself what you can cut. The more items you can eliminate now means more money to put away for your future. So, cancel the subscriptions or memberships you aren’t using right this minute. For every dollar amount you find, schedule an automatic transfer so the money actually moves out of your checking account and into savings. That way, you won’t have to worry about remembering to do it later.
Good rule of thumb
People in their 20s and 30s should be saving at least 15% of what they earn for retirement (this can include matching dollars from employers). For those starting to save in their 40s or older, the amount needs to be at least 20% of earnings being funneled into retirement savings. If your company offers a 401K or other savings plan, try your best to max it out every year. Same goes if you save in Roth and traditional IRA accounts.
Stimulus and tax refunds
If you are one of the millions of Americans who qualify for a payment from the third federal stimulus package, consider stashing whatever piece you can afford into retirement savings. Same goes for the second stimulus check if you haven’t spent it already AND any tax refund you get this year. If you aren’t depending on those windfalls to cover living expenses in 2021, move the money out of your checking account and into a retirement account where it can begin to grow for you.
Catch up contributions
In 2021, you can contribute up to $19,500 to a 401(k), plus an additional $6,500 for those age 50 or older. For those age 50 and older, the catch-up contributions to a Roth or traditional IRA are allowed to be up to $1,000 this year. The catch-up contribution to an IRA is due by the due date of your 2020 tax returns, not including extensions. And if you are 55 or older, you can add an extra $1,000 to your Health Savings Account or HSA.
With reporting by Casandra Andrews