11 Tips To Catch Up On Your Retirement Savings – Forbes Advisor

Are you feeling behind on your retirement savings? You are not alone. Only 31% of people feel they are saving enough for retirement, according to the Federal Reserve. With wages failing to keep pace with inflation, it’s hard to save for the future when you’re struggling to survive the present.

Still, you may have found ways to increase your income, decrease your expenses or both. Here are 11 strategies you can use to get caught up on your retirement savings so you can enjoy your golden years.

1. Increase Your Income

If you’re struggling to find the funds to contribute to retirement, your first step should be to try to increase your income. Advocate for yourself at work and negotiate pay raises and promotions. Keep track of your accomplishments throughout the year so you have a strong argument when review season rolls around.

When you do get that raise, put it toward your retirement contributions. If you’ve been living just fine on your old income, chances are you won’t miss seeing the increase in your paycheck.

Side hustles can also be a great way to bring in some extra cash. Use that money to supercharge your retirement savings in an individual retirement account, or IRA. Just make sure to set some of your earnings aside for taxes.

In addition to increasing your income, your side hustle can give you access to more tax-advantaged savings options like a solo 401(k). With a solo 401(k), you can contribute as both the employee and the employer. If your business earns enough, you can hit the combined maximum contribution limit of $69,000 in 2024, which will supercharge your savings.

2. Tackle Your Debt

Credit card debt can take a big chunk out of your cash flow each month. If you’re carrying balances with interest rates higher than 10%, you may want to shift some of your focus to paying them down. Once they are down to zero, you’ll have a lot more to contribute to retirement.

You should still aim to contribute enough to your 401(k) to get your company match—more on that below. Any cash over that amount you should direct toward paying off your credit cards. But if you find yourself getting back into debt, you may need to take a hard look at your budget. You do not want to enter retirement with high-interest debt if you can avoid it.

3. Cut Unnecessary Expenses

Every household should review their expenses at least once a year regardless of how much they have saved for retirement. Reassessing your finances can help combat lifestyle creep and help you feel more in control of where your money goes.

Look for ways to reduce or cut expenses and put that extra cash to work toward your retirement savings. There are lots of little ways to save money each month, and even small amounts can add up over time.

Review your expenses and make sure that your spending aligns with your values where it can. Avoiding an occasional latte is not going to help you retire sooner, but avoiding a daily latte plus a breakfast sandwich, lunch out and happy hour absolutely can. If you don’t value things like nice cars or aesthetic houses, make sure that you aren’t blowing your budget at Home Goods or on a big car payment.

4. Set Specific Savings Goals

Simply saying “I want to save more money for retirement” may leave you aimless. As you ramp up your retirement savings, set measurable and specific goals. Here are some good examples:

• I will increase my 401(k) savings by 3% each year for the next three years.
• I will contribute the maximum amount to my traditional IRA each year I am eligible.
• I will find $100 of expenses to cut each month and use the savings to fund my Roth IRA.

Review your goals every year and celebrate every time you reach a goal.

5. Get Your Company’s 401(k) Match

One of the easiest ways to supercharge your retirement savings is to make someone else contribute for you. Many employers offer a matching program for their 401(k)s, although matches vary from employer to employer. Some offer a flat match on your salary, while many will match a certain percentage of what you contribute up to a certain amount.

Read your plan documents and ensure you’re getting your full company match. Check your vesting schedule too. Lots of companies require you to stay for a certain period of time to receive the full employer match, often a year or more. If you leave during the vesting period, your employer will take back what they’ve contributed. You are always fully vested in your contributions though, so don’t be afraid to contribute from your paycheck.

6. Maximize Your Contributions

If you’re already contributing enough to get the company match but still feel behind, the next step is to max out your 401(k) contributions. For 2024, the maximum contribution you can put into your 401(k) is $23,000, plus an additional $7,500 if you’re 50 or older. Your employer contributions don’t count toward this cap, only your own contributions. But if you change jobs midyear or have multiple employers, you cannot contribute more than $23,000 across all employers.

7. Consider a Roth or Traditional IRA

Another option is to contribute to a traditional or Roth IRA. You set these up outside of your employer and contribute money directly to them. With a traditional IRA, you get a tax deduction for money you contribute. However, your withdrawals will be taxed in retirement. With a Roth IRA, you don’t get a tax deduction when you contribute, but withdrawals are tax-free after age 59.5.

There are some extra rules with IRAs, though, including income limitations. Not everyone is eligible to contribute to an IRA. Here are the income limitations based on filing status for both traditional and Roth IRAs:

Roth IRA Income Limits in 2023 and 2024

Traditional IRA Tax Deduction Income Limits for 2023 and 2024

Not sure which one is right for you? Learn more in our article on how to maximize your IRA contributions.

8. Contribute via a Mega Backdoor Roth

Already maxing out your 401(k) and IRA? See if your employer allows you to contribute to a mega backdoor Roth. In a nutshell, these plans let you contribute even more to a Roth IRA—tens of thousands of dollars more. This is a great option for people who have plenty of income but are maxing out all their other retirement accounts.

While these have grown in popularity over the last few years, many employers do not offer it. Ask your benefits or human resources team if this is available to you.

9. Open a Taxable Investment Account

Still have money leftover after your other options? Consider the humble taxable investment account. As the name implies, you don’t get any special tax incentives for contributing to one. However, they come with lots of flexibility. There’s no limit to how much you can contribute, and you don’t have to wait until age 59.5 to take your money out.

10. Review Your Investments

It’s not enough just to contribute to a retirement account—you need to invest the money as well. Often people will contribute to a Roth or traditional IRA only to miss the next step of investing the funds. Unless your account is managed by an advisor or robo-advisor, this isn’t done automatically.

Most 401(k) plans will put you in a default investment but not all. Confirm you aren’t sitting in cash or a money market fund and that all of your future contributions have an investment election.

If you aren’t sure how to invest your money, consider using a target date fund. While target date funds aren’t the best option for everyone, they’re the closest to a one-size-fits-all option we can share. It’s better to pick something that’s 95% right for you than to be stuck in analysis paralysis for years chasing the 100% perfect investment while you miss out on compounding gains.

Target date funds are invested based on a goal retirement year and will change to more conservative investments as the date gets closer. To pick a target date fund, figure out what year you’d like to retire (or the year you turn 65 if you’re unsure) and pick the closest target date fund to that year.

11. Delay Your Retirement and Work Longer

Plenty of people get to retirement age and choose to work longer because they enjoy what they do. But very few want to keep working because they need to. It’s also not a great solution to rely on—as we get older, our health can impact our ability to work.

You have a lot of options for catching up on retirement savings, but almost all require more time or more money—or both. The best way to prepare for retirement is to contribute early and often. Pick an investment strategy and stick with it. Even incremental changes can add up to a comfortable retirement over time.