Are you one of the many people who promised to start, or improve upon, your retirement savings this year? New Year’s resolutions are often nixed before they even start, because we don’t have a plan. Here are five things you can do to help keep yourself moving toward your retirement goal.
1. Maximize your retirement plan contributions.
Regardless of your age, the fastest way to build your retirement savings is to contribute the maximum allowable amount each year. In 2013, if you have an employer-sponsored retirement saving plan, the maximum allowable contribution is now $17,500—an increase of $500 over last year’s limit. So, don’t forget to notify your payroll department to make the change to your deductions. And if you are at least age 50 by the end of this year, you can take advantage of the “catch-up” provision, and add up to an extra $5,500, for a total allowable contribution of $23,000.
2. At least take the match.
Many employers offer matching contributions when you take advantage of their sponsored retirement plan. For example, they may match you dollar-for-dollar if you contribute 3% or more of your salary. That’s like putting money into savings and getting a 100% rate of interest! At the very least, take advantage of the free money your employer is willing to give you.
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3. Bank your raise.
You’ve been surviving without it, so you probably won’t even miss it. If you get a raise, why not put it toward your retirement? If you’re not already participating, using your raise to start can help you qualify for your employer’s matching contributions.
4. Express your individuality.
If you’re already making the maximum allowable contribution to an employer sponsored plan, you can still contribute to an Individual Retirement Account (IRA), and save even more. You have until April 15, 2013 to contribute as much as $5,000 for 2012 ($6,000 if you were at least age 50 by December 31, 2012). For 2013, you can contribute as much as $5,500 ($6,500 if you’re at least age 50 by December 31, 2013). If you have a retirement plan available to you through your employer, some or all of the contributions to an IRA may not qualify for a tax deduction. If that’s the case, you should consider a Roth IRA instead of a traditional IRA.
If your employer doesn’t offer a retirement savings plan, you’ll want to take full advantage of an IRA (both traditional and Roth) as well as other strategies. For example, a tax-deferred annuity will allow you to put money away toward your retirement and put off paying the taxes on the earnings until you withdraw them. In some cases, it may even make sense to incorporate the use of life insurance to build a nest egg. And of course, there’s no harm in using traditionally non-retirement investments as well.
If you own a business, or are self-employed in any capacity, you can take advantage of retirement plans designed for your unique needs. For example, a SEP-IRA, a Simple IRA, or a Solo-401(k) may be your ticket to retirement.
5. Get a tune-up.
Just like you do to keep your car running smoothly, you should do the same for your retirement vehicles. Over time, different types of investments grow (or decrease in value) faster than others, so your investments may need to be rebalanced. Review how your assets are spread among the various asset classes (i.e. stocks, bonds, fixed, etc.) to make sure it’s still appropriate for your risk tolerance and goal. In addition, review your overall goals and determine if you’re on track for success. If not, consider making changes to your overall spending and savings tendencies. Better yet, if you don’t use one already, consider hiring a financial planner to make sure you’re doing everything you can to successfully reach your retirement goal.