3 Signs You’re Not Ready to Buy a Home This Year
It may not be the best time for you to buy a home. Read on to see how to tell.
Like most people, I have my days when retirement seems very far away. The truth, however, is that it often sneaks up on us faster than we realize. That’s why saving for retirement by starting as early as possible is crucial. But it’s also easier said than done.
If you’re getting a later start on retirement savings than you intended, here are a few tips you can use to try to grow your retirement savings at top speed.
Image source: Getty Images.
1. Focus on keeping costs down
It’s impossible to invest without paying some fees, but you can take steps to minimize them. First, if you’re investing through an IRA or a self-employed retirement account, do your research before choosing an account provider. Compare the features and fee schedules for a few different companies before you decide which one you want to work with.
If you’re investing through a 401(k) or other workplace retirement plan, you probably don’t get a choice about which broker you work with. And you might also be limited in what you invest in. But you still have some options.
Most 401(k)s give participants a choice between several mutual funds, which charge annual fees known as expense ratios. These are written as a percentage of your assets. For example, a 1% expense ratio means that every year, you’ll pay the mutual fund company 1% of all the assets you have in the fund. If you have $100 invested, that’s only $1. But if you have $100,000 invested, it’s $1,000.
Try to keep your expense ratios as low as possible. Index funds are a great, affordable option for most people. These funds instantly diversify your money among hundreds of stocks, and some have expense ratios as low as 0.03%.
If you don’t have any low-cost options available to you, talk to your employer to see if it’s willing to add some. Or consider moving your money to another retirement account, like an IRA, that gives you greater freedom to invest the way you want.
2. Claim your 401(k) match whenever possible
A 401(k) match is often worth several hundred to a few thousand dollars each year, but its true value is much more than that. A $1,500 match claimed this year could be worth over $11,000 in 30 years if you earn a 7% average annual rate of return. And if you claimed a $1,500 match every year over that 30-year period, you’d have over $147,000 just in employer-matched funds alone. (In actuality, you’ll probably end up with a lot more.)
401(k) matching programs require employees to contribute money to their own accounts first. Then, the employer will either match the employee’s contribution dollar for dollar or $0.50 on the dollar, up to a certain percentage of the employee’s annual salary.
If you got a dollar-for-dollar match worth $1,500, you’ll double the $1,500 of your own money you set aside each year. Returning to our example above, your total balance at the end of 30 years would be $294,000 — $147,000 of your own money and $147,000 from your employer.
With that kind of money at stake, it makes sense to claim your 401(k) match whenever possible. If you’re not sure how your company’s matching formula works or if you qualify for a match at all, check with your HR department. Then, do your best to claim as much of your match as you can every year.
3. Make catch-up contributions if you’re eligible
An adult under 50 years old is only allowed to contribute up to $20,500 to a 401(k) in 2022 and $6,000 to an IRA. But those who are 50 and older can contribute up to $27,000 and $7,000, respectively. You don’t have to do anything special to make these extra contributions. As long as you’ll turn at least 50 in 2022, you can just set aside the extra money without fear of penalties for excessive contributions.
It’s not always easy to come up with this extra cash, but if you have it handy, it’s definitely smart to take advantage of catch-up contributions. If you’re 50 and you don’t plan to retire until your mid-60s or 70s, that money has close to two decades to grow before you’ll need to begin withdrawing it. If you contributed an extra $6,500 to your 401(k) every year for 20 years, you’d wind up with over $276,000 just from your catch-up contributions, assuming you earned a 7% average annual rate of return.
You might even end up with more over time. The government periodically raises the contribution limits for all retirement accounts, including catch-up contributions, so you might be able to set aside even more in future years.
These tips may not all make sense for you right now, but keep them all in mind as you move forward in your career. Take some time to brainstorm other ways you can boost your savings, as well. Everyone’s path to retirement looks a little different, so only you can decide which retirement savings strategies are right for you.
The $18,984 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $18,984 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.
