Saving for retirement requires patience and consistency. While saving might not be the first thing on your mind when you’re young, the earlier you start saving the better. Regardless of your age, however, our five tips below will help you boost your retirement savings.
Take Advantage of Compound Interest
When you invest your money, your interest adds to your principal investment, which increases the amount of interest you earn in subsequent years. This means that investing your money results in exponential growth over time. It also means that the earlier you invest your money, the more opportunity you have to grow your savings in the long run.
Make the Most of 401(k)s
One of the most popular investment vehicles is a 401(k). Essentially, a 401(k) is a tax-advantaged workplace retirement savings plan that invests money from your paycheck into mutual funds. As these mutual funds grow in worth, so does your retirement savings.
Oftentimes, employers offer a company match, where they match your savings up to a certain percentage of your salary. Typically, employers match a maximum of around 5% of your yearly earnings. If your company offers this, it’s worth maximizing your match to earn “free money” which will help you progress toward your financial goals.
Postpone Social Security
While you become eligible for Social Security benefits at 62, you can choose to delay your checks each year. For every year that you do so, your earnings for subsequent years will grow by 8%. If you are financially stable enough to do so, you can continue to do this up until age 70.
Each state in the US has different taxation policies on retirement income. For example, some states, such as Florida and Alaska, don’t have income tax at all, meaning it’s easier to save for retirement. In other states, such as Delaware or California, there are no taxes on Social Security, but other retirement benefits might be taxed at varying rates.
For this reason, it’s important to take into account cost of living and retirement taxation rates before you settle on a retirement location. If you live in a state with higher taxation rates, it’s worth considering a move to a state where you can preserve more of your income.
Evaluate Your Budget
The most straightforward way to boost your retirement savings is to evaluate your budget. Measure where your money is going each month. See what purchases you’re making that are necessary and what is unnecessary. Where possible, cut back on your spending and reinvest that money into savings.
The sooner you can start accumulating savings for retirement, the more financially secure you will be in your golden years. For maximum savings, evaluate your budget, postpone Social Security payments after 62 and consider relocating states. For more retirement savings tips and a 401(k) savings timeline, check out the infographic below.