Most likely you have plenty of to-dos on your list. When it comes to saving for your future, where is it on your list? Here are some tips to help you understand your options and improve your overall retirement savings picture.
If you have an employer-sponsored retirement plan such as a 401(k), 403(b) or 457(b), you can contribute up to $19,000 a year or $25,000 if you’re 50 or older. In an ideal world, it would be great to contribute the max, but it’s not a one-size-fits-all scenario. Depending on your age and income, contributing the maximum to your retirement account may not be realistic, especially when you have other financial obligations you must address. However, financial experts suggest that as a rule of thumb, it’s wise to earmark 10% of your pretax income for retirement.
Also, keep in mind that here are other things to consider besides retirement. For instance:
- Do you have a healthy emergency fund?
- Do you have credit card debt?
- Do you have adequate life insurance?
If you answered yes to any of these questions, then it’s clear that you must manage your money to address several financial goals.
First, Always Take the Match
If you have a 401(k), your employer usually matches your contributions — typical matches are from 2% to 8%. That’s why you should take the match and then some. It’s a no-brainer to take advantage of free money. From your first paycheck, you should set up automatic contributions to match your employer’s match and try to build up to at least 10% of your pre-tax income. If you have a plan with no match, contribute as much as you can and again work toward that 10%. The good news is when you invest automatically and regularly you will get used to living on less income and build up your investments.
Next, Emergency Fund
An emergency fund helps you manage unexpected expenses – such as your car breaks down or you need to buy a new hot water heater. At the minimum, save $1,000 and then add to that. The best way to consistently save is to set up automatic payroll transfers to a designated savings account, preferably one that is not connected to your checking account, to avoid dipping into it.
If you have a spouse and kids, a term life insurance policy can take care of them and your retirement savings if something happens to you. A 30-year term life policy is extremely affordable and can help your family to pay off the mortgage and cover expenses.
Be Consistent with Retirement Contributions
Once you have these other financial goals in place, then you can think about increasing your retirement contributions. If you’re younger, and haven’t started investing regularly and are not taking advantage of an employer-sponsored plan, make sure you make this a priority. As you age, if you can increase your contribution amounts and still afford your other financial obligations you should do so. A financial advisor can help you decide what makes the most sense. If you don’t have an employer-sponsored plan, a traditional or Roth IRA can help you sock away money. A Traditional IRA uses pre-tax dollars and has the potential to reduce what you owe on your taxes. A Roth IRA uses after-tax contributions, allowing your contributions to grow tax free. Learn more about IRAs.
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Extra Credit provides general information to help improve our Member’s financial lives. Every situation is different, so please contact us for guidance on your specific needs. The advice provided in Extra Credit is not intended to serve as a substitute for speaking to a loan representative, financial advisor, or BALANCE counselor who can help tailor a solution for you.
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