The financially organized person has many characteristics, including having little or no debt (or at least a sound strategy for paying down debt), having a monthly budget and actively working towards clear financial goals. One of the signs of the truly elite chief financial officer among us is maximizing one's retirement accounts each year, but only one in five Americans are able to do so, according to the 2019 TD Ameritrade Retirement Pulse survey.
Perhaps surprisingly, baby boomers are the most likely to do so, because at this stage in life there are not many financial goals left to save for except retirement. Millennials came at a distant second, with Generation X leading backwards. This makes sense when you consider the financial obligations that many people in this generation have for both children and parents, not to mention their own debt.
Maximizing retirement accounts is not easy for many people, but it is one of the best things you can do for your future if you can afford to. Here's a look at how it might benefit you, and where you can find some extra money to put towards your pension.
The difference that maximizing retirement accounts can make
Most Americans don't even come close to maxing out retirement accounts. The average 401
Let's use the above figures to estimate the difference that maximizing your retirement savings can make over time. First, let's establish the average $ 2,370 401 (k) contribution as a baseline. It comes out at $ 197.50 per month. If you contributed this amount every month for 30 years and earned a 7% annual return, you would end up with a final balance of just under $ 224,000. The average household headed by an adult 65 or older spends nearly $ 50,000 a year, according to the Bureau of Labor Statistics, so this probably won't even see you through five years of retirement. Social Security can help you relax a little longer, but you can forget about travel and big ticket purchases. Just covering the basic cost of living is likely to be a struggle.
Let's imagine that you contribute a maximum of $ 6,000 to an IRA every 30 years with a 7% annual return. It will give you almost $ 567,000, which is much better than $ 224,000, but still probably not enough for most retirees.
What if you contribute a maximum of $ 19,000 (about $ 1,583 per month) to a 401 (k)? During the same timeframe with the same annual return, you will end up with close to $ 1.8 million. Now it is a nest egg that most people can comfortably pull on, and it will probably even allow for some travel and maybe some big ticket purchases.
The above figures do not explain changing market conditions or the fact that pension deposit limits change from year to year, but they give you a rough sense of where you can end up based on how much you put into your retirement life each month.
How to Increase Your Retirement Grants
I hear many of you saying, "It's easier said than done. I don't have an extra $ 19,000 to retire each year." And I hear you. It's not easy for most people. But the good news is that you may not even need to save that much per year to retire comfortably, depending on when you start saving, how long you expect the pension to last and how you plan to use it.
Before raising your pension contributions, it is best to estimate how much your pension will cost you by multiplying the annual cost of living in the pension by the estimated length of the pension, adding 3% annually for inflation. Use a pension calculator to help you estimate your return – 5% or 6% is a good starting point – and deduct money you expect from Social Security, a pension or a 401 (k) match to figure out what to save own hand. If you find that you need to increase your pension contributions, try some of these tips.
If your company offers a 401 (k) match, you should also do everything you can to take advantage of it. Do what you have to – cut down on discretionary spending, bring lunch to work instead of eating out, brewing your coffee at home or skipping it altogether – to free up enough money to set aside for retirement so you can get your full employer fight . This is free money that reduces your savings burden. There is no good reason not to take it unless doing so would jeopardize your ability to cover your basic living expenses. Watch out for the company's earnings plan. If you leave before you are completely distributed, you may lose part or all of the employer fight.
Beyond that, try to make some lifestyle changes. Look for ways to reduce your monthly expenses and create a budget that you can stick to that prioritizes retirement savings over discretionary spending. You can also look for ways to increase your revenue today, such as pursuing a marketing campaign or starting a business. Put the extra money you earn towards retirement first. You will not miss it because you are not used to it. If you start a sideline, don't forget to set aside some of your money for tax.
Delay your pension if nothing else works. This gives current savings money more time to grow and gives you more time to save for your future. It can also reduce how much you have to save per month to reach your goal. If you wanted to save the same $ 1.8 million as in the example above, but you had 40 years to do it instead of 30, you would just need to save around $ 750 a month instead of $ 1,583 we used above, provided that the market conditions were more or less the same during this period as in our previous example.
Don't get too stressed if you can't save as much as you want to retire this year. Try some of the tips above until you find a plan that works for you. You may also consider enlisting the help of a financial advisor if you are not sure how to best manage your money on your own.