For many, life got in the way when it came to saving for retirement. Now that they are getting older and retirement is looming in the not too distant future, they find they either have nothing saved or too little. Not to worry, there are several ways to increase your retirement savings including the catch-up contribution.
The Best Way to Increase Retirement Savings – The Catch-Up Contribution
If you haven’t been saving for retirement, don’t feel too bad. The truth is that 28 percent of those over the age of 55 have no savings. In addition, another 26 percent have under $50,000 set aside for retirement.
If you fall into one of these groups, and you’re 50 years old or older, you should be considering catch-up contributions. There’s a good chance your employer offers a 403(b) or 401(k). If so, you are allowed to contribute $18,000 for the year.
In addition, once you’re 50, you can add another $6,000 as a catch-up contribution.
On the other hand, if your employer doesn’t offer either one of these investment types, you can turn to an IRA. With an IRA, you are allowed to save $5,500 each year. Once you’re over the age of 50, you can add an additional $,1000 catch-up contribution each year.
It may not sound like much, but over the next 15 years, you’d end up with an extra $150,000 in savings if you’re receiving 5 percent interest.
Additional Ways to Increase Your Retirement Savings
There are a couple of additional ways you can increase your retirement savings. The first is to work longer than you originally planned. You’ll want to work until your full retirement age and maybe even longer.
Also, while you continue to work, you should have a goal of saving at least 30 percent of your income. This may sound like a lot, but it will help you increase your retirement savings, at a time other major debts, such as your mortgage should be decreasing, so you should have more disposable income.
Think of it this way. If you make $50,000 per year and are saving 30 percent of your income, that’s an additional $15,000 to invest, not taking into account taxes and other deductions.
A final way to increase your retirement savings is to increase guaranteed sources of income. One source of income you are guaranteed to receive is your Social Security. You need to ensure you take action now to receive the highest amount possible.
Check out your expected benefits by going to the Social Security Administration’s website. You’ll need to create a free account, but once you do, it will give you an idea of what you can expect. You’ll have options to see how the amount increases by delaying your benefits by a year or two. This can help your overall financial picture when it is time to retire.
Also, once you are required to start receiving your Social Security, keep in mind that if you continue to work, your benefit amount will continue to rise. Of course, if you make too much money, you’ll also end up paying additional taxes, so it is a balancing game.
The bottom line is this. It’s never too late to start saving for retirement. Whether you decide to work longer or save more or take advantage of the catch-up contribution option, you can increase your savings and be financially independent once you do retire.
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