Many people are not saving enough money to have a secure retirement. You’ll need a nest egg that provides a good amount of income to supplement Social Security, and the sooner you begin investing, the easier it will be to amass the necessary funds.
It may seem difficult, or even impossible, to increase your retirement-account contributions if you’re like most people and have a lot of obligations today. But the good news is, there are three ways you can effortlessly invest more for the future without making major changes to your lifestyle. Here’s what they are.
1. Bank your raises
If you get a new job that pays more or if you get a salary bump from the company you work for, investing that extra income is one of the easiest ways to effortlessly boost your retirement savings.
Most people organize their financial obligations around the amount they are currently making. You’re living on your salary today so if it is increased tomorrow, obviously you won’t yet have any commitments that require you to spend the extra cash. Rather than just increasing your spending to eat up that additional money, why not redirect it immediately to savings.
If you can bank your raises, you should be able to increase your retirement-account contributions with no change to your current standard of living because you won’t get used to having the extra cash in the first place.
2. Invest windfalls like tax refunds
Chances are good that you cover most of your routine costs with your regular paychecks. So when you get some extra money such as a tax refund, workplace bonus, or cash gift, this is an ideal opportunity to invest it since you aren’t relying on the money for anything else.
As soon as you get a tax refund or other influx of funds that’s not part of your normal earnings, put it immediately into an IRA if you have one. Or sign up to make an additional 401(k) contribution at work. The money can work for you over the years to help build your retirement fund without necessitating any major sacrifices now.
3. Take advantage of tax breaks
Finally, you should claim as many tax breaks for retirement investing as possible, as this is free money from Uncle Sam to help you save. You can actually save money on your tax bill by making contributions to multiple types of retirement accounts, including a 401(k), IRA, and health savings account (HSA).
If you invest in a traditional 401(k) or IRA, you get a tax break up front in the year you make the contribution. This means the amount of money you invest doesn’t reduce your take-home income as much. If you invest in a Roth 401(k) or Roth IRA, there’s no upfront deduction, but withdrawals can be made tax free so you don’t need to invest extra to be able to pay the IRS later. And if you invest in an HSA and use the money for qualifying healthcare expenses in retirement, you can get both an upfront tax break for contributions and take tax-free withdrawals.
In addition to these tax-savings opportunities, lower- and middle-income individuals may also be able to qualify for the Saver’s Credit. This tax credit is worth as much as $2,000 for married couples who invest in a retirement account and qualify for the entire amount.
Investing windfalls, banking your raises, and getting help from the government are three great ways to add extra money to your retirement accounts — even if you don’t feel like you have a ton of cash to spare. Give them a try so you can get one step closer to building an investment portfolio that will help take care of you as a retiree.
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