Buried underneath paying bills, digging out of a debt hole, and saving for your kids’ college is the marathon of money goals: retirement. Cue the fantasies of spending your days at a leisurely pace, working on The Great American Novel—at long last—or cavorting around North America in a decked-out RV.
The sobering truth is that many of us have far less in retirement savings than we’ll need. According to recent research by Northwestern Mutual, 1 in 3 Americans have less than $5,000 saved up for their Golden Years. What’s worse, 1 in 5 have no retirement savings whatsoever. Nada. Zip. Zilch.
Another sobering truth: While you can borrow for practically everything else, the one thing you cannot take a loan out for is your retirement. And because it’s a behemoth of a goal, oftentimes taking decades to achieve, you may feel further discouraged.
The best time to get started on your retirement savings? It’s now. So as you sign up for that gym membership or diet program at the beginning of the year, you also might want to whip your retirement savings into shape.
Here are a few pointers on how to go about kick-starting a retirement fund in the new year:
Contribute to a 401(k)
The end of the year is a great time to start contributing to an employer-sponsored retirement plan. Did you get a raise at the end of the year? Consider putting away a percentage of that raise. For instance, if you received a 3 percent raise, sock away 1 percent toward your 401(k) plan. You most likely won’t miss it from your paycheck.
If your workplace offers an employer match, take advantage. Aim to save at least enough to get the full match. That’s money you’re leaving on the table, and consider it part of your compensation.
Set Up an IRA
The 2019 contribution limits for either the Traditional and Roth IRA is $6,000, which is a bump up from $5,500 in 2018. (If you’re 50 and up, there’s an additional catch-up contribution of $1,000.) That breaks down to $500 a month. That’s no small financial fry, but if you can, challenge yourself to save $100 a month, and bump it up when you’re able.
The main difference between a Traditional and Roth IRA is when you’ll have to pay taxes. With a Roth, you’re contributing post-tax dollars. in other words, you pay taxes on it now, and don’t enjoy a tax break. When it’s time for you to take money out of your account, your withdrawals are usually tax-free. With a traditional IRA, you’ll putting in pre-taxed money. That means your contributions are tax-deductible the year you make them. You pay taxes when you start making withdrawals.
And whether you want to enjoy tax savings now or later depends on a handful of factors, such as your current income, how much you plan on making when you retire, whether you’re married, and how old you are.
Review Your Current Retirement Mix
If you have several different retirement accounts, go through all of them so you know exactly how much you’re socking away into each one. You want to make sure you’re contributing the right amount so that you get back on track. Plus, you’ll want to look at the tax implications to figure out what’s going to make the most sense for you.
Right now I have an IRA and just opened an Individual 401(k), which in all money nerdiness, I’m super excited about. Because an Individual 401(k) allows you to make both employer and employee contributions, I’ll need to gauge the max amount I can put into my fund in a given year, based on my income.
Look for “Funds Forgotten”
When I left my last job, it turned out I was eligible to make contributions to the employer’s 401(k) plan, and my employer had set up auto contributions without my knowing it. So I had about $500 in a 401(k) plan that I had plumb forgotten about.
If you recently switched jobs, make sure those funds are accounted for. You normally have the option to either leave the funds in your former employer’s retirement plan, roll over the funds into another plan, or cash out. It’s highly recommended that you roll that moola into another fund for your golden years.
While retirement may feel like light years away, the sooner you get a jump-start, the better. (Behold, the power of compound interest.) And it may seem silly to auto-save $20 a month when you’ll need closer to a cool million.
But the point is to create the inroads to saving for retirement. Set up that account, and auto transfer whatever you can reasonably afford on the regular. That way when you shore up more funds to squirrel away for your nest egg, it’ll be easy.
Find a Retirement Accounta-Buddy
My friend Julia and I are in a friendly competition of sorts with our retirement goals. As she hopes to retire as soon as possible, she’s far more ambitious than I am. But it certainly helps us keep our retirement savings milestones top of mind. Plus, having a pal to talk finances with makes it that much more fun.
Fold Retirement Into Your Overall Spending Plan
My fellow money nerd pal Eric put it wisely when he said that your savings should be part of your spending plan. It’s not a nice to have, or an “If I come into some money, I’ll do it” sort of thing. It should be an essential part of your budget.
I get it. It can feel silly to save for something that can be decades away when you have needs and wants in the here and now. But you definitely want to have something saved up so you can comfortably retire.
I set up an automatic contribution for my IRA, and aim to save a certain amount into my Individual 401(k). Because I’m not sure how much money I’ll be able to save in a given year, I plan to save beans for the Individual 401(k) into a separate savings account and make a single contribution at year’s end.
We all know that saving for retirement is super important in taking care of future you. While it’s a giant, long-running undertaking, by starting small and starting now, you’ll start to make headway on this mission-critical money goal.