When planning for retirement, the earlier you can start saving and investing for your future, the better off you will be. Compound interest helps increase the value of your money as time goes on while it stays in your retirement account. However, even if you are late to start saving, there are ways that you can increase the amount you have saved. The following are some tips that will help boost your savings no matter what stage you are in with planning for retirement.
1. Focus on starting now. If you are just starting, save and invest as much as you can now to let the compound interest take effect. Even if you can only invest a small amount each month, it is better than investing nothing. Investing a smaller dollar amount over a longer period of time can have a greater impact than investing a larger dollar amount for a shorter period of time.
2. Open an IRA. An IRA is an individual retirement account. There are two types of IRAs that you can pick from: traditional IRA and roth IRA. With a traditional IRA, the money you put in now will not be taxed but when you take it out of your account, it will be taxed. Roth IRA taxes your money now and then you do not have to pay taxes on it later when you withdraw it. With both accounts, if you are under the age of 50, you can contribute $5,500 per year and if you are 50 or older you can contribute up to $6,500 per year.
3. Utilize your employer’s match. If your employer offers a 401(k) match program, it is extremely beneficial to take advantage of this. An employer may offer to match 50% of an employee's contributions up to 6% of his or her salary. Therefore, if you were to earn $50,000 per year and you put in $3,000 to your retirement plan, then your employer would contribute another $1,500. This is essentially free money to you and is a great tool that can help grow your retirement savings much faster.
4. Pay yourself first. Set up automatic payments that deposit a set amount into your retirement account each month. Putting automatic payments into effect will make your contributions without you even thinking about it. You can also set up your automatic payments to invest a specified amount to funds that you select.
5. Set a goal. It is important when investing and saving to set benchmarks so you can see the progress you are making. As you start progressing towards your goals, you will gain satisfaction and reassurance knowing you are setting yourself up for success in the future.
6. Take a close look at your budget. See where you might be overspending in your monthly budget. If you can decrease the amount you are spending now and adjust some of your spending habits, you will be able to save or invest more money into your future. Cutting out excessive spending or dining out a couple times a month will surprise you at how much more can be put towards your retirement. Also, if you receive extra funds from a raise at work, increase your contribution percentage and put at least half of your new money to your retirement plan.
No matter what stage in the retirement planning process you are in, it is always important to find creative ways to increase your savings and investments. When you make the contributions now, retirement becomes something to look forward to, rather than something to stress about. Thank yourself later for the contributions you make today to increase your financial fitness.