When you first enter the workforce, retirement is often the last thing on your mind. After all, you have decades before it will be around the corner. If you wait to start planning, however, you could be faced with a problem. The earlier you start putting away money for retirement, the more likely you are to have enough savings when you decide to leave work. Here are a few ways you can bump up your annual retirement savings:
1. Contribute to the Maximum Employer Match
Many employers offer matching 401(k) contributions. You might get a dollar-for-dollar match or a percentage, and there are often limits, but every cent your employer contributes is free money. For example, if you earn $30,000 per year and your employer matches up to 3 percent at 50 percent, a 6 percent contribution would max out your employer’s match. You would put in $1,8000 per year and your employer would contribute $900 for a total of $2,700. Contributing less than the maximum match is like turning down a pay increase.
2. Open an IRA Account
Some employers include IRA management and matching contributions as part of your compensation, but others do not. You should always have an IRA account, regardless of what your employer offers. A traditional IRA allows you to deposit funds tax-free up to a maximum annual contribution. A Roth IRA uses post-tax dollars, reducing your tax liability on eventual disbursements. A mix of both types can help grow your retirement income more quickly.
3. Long-Term Care Insurance Pros and Cons
Medical expenses are one of the biggest budget lines after you retire. You lose your employer-sponsored health plan and need alternatives. Medicare only covers some costs, leaving you with a substantial liability. If you need more help around the home, you could be on your own. Long-term care insurance is one way to help limit your financial risk. Medicare does not cover assisted living, but long-term care insurance may.
4. Start Saving, Today
Personal savings can help you avoid emergencies that leave you dipping into retirement funds. A sudden emergency could push you to withdraw money from your IRA, but the penalties make this a very expensive way to pay off an unexpected financial obligation. Upping your personal savings can help. Simply set aside an amount each week for savings. If you set up automatic transfers on payday, you never see the money and rarely miss it.
Building up enough financial security to last through retirement is a long process but worth the effort. No one wants to keep working when their health starts to become a major issue. Learn to save, plan for the future and retire in style.