6 Ways To Increase Your Retirement Savings In The New Year
Editor’s Note: This story originally appeared on The Penny Hoarder.
If you’re worried about your retirement savings, you’re not alone.
According to a February 2021 research report from the National Institute on Retirement Security, 56% of those surveyed said they feared achieving a financially secure retirement.
If your savings weren’t enough in 2021, the New Year is a great time to get back on track and meet your retirement goals.
We’ve put together some tips to help you get there.
A lot has happened this year. We understood.
Perhaps you have started a new job or taken a sideline. Maybe you’ve been out of the workforce for a while to take care of your family.
Perhaps the last thing on your mind was to put money aside for retirement.
Following these steps can help turn retirement savings from a scary to-do list item into a wealth-building reality.
1. Put money back in your 401 (k) before the end of 2021
Boosting your retirement savings now – before the end of 2021 – could give you a nice tax treat next year.
In fact, contributions made to your 401 (k) before December 31st help reduce your annual taxable income.
It’s not a tax credit or deduction, but by reducing your taxable income you could save money at tax time – or even increase your refund.
The maximum you can contribute to a 401 (k) in 2021 is $ 19,500 – or $ 26,000 if you’re 50 or older – by the end of the year.
2. Don’t have 401 (k) at work? Open an IRA with a Robo-Adviser
Not everyone has access to a 401 (k).
In fact, 33% of all workers in the private sector did not have access to any type of employer-provided pension plan in 2020, according to the Bureau of Labor Statistics.
If this is your case, you can still save for your retirement on your own. And I promise, it’s not as scary as it sounds.
Robo-advisers are online companies that use advanced computer algorithms and software to create and manage your investment portfolio.
They take the guesswork out of investing by choosing stocks and bonds that match your risk tolerance and financial goals.
The best robot advisers on the market give you access to tax-efficient individual retirement accounts (IRAs). You can set one up in under 20 minutes without ever picking up the phone or talking to a real person.
Companies like Wealthfront and Betterment give you the option of opening a Traditional IRA or a Roth IRA when you create your account.
Both types of accounts allow you to contribute up to $ 6,000 per year in 2022, or $ 7,000 for people 50 and over.
Roth and traditional IRAs also offer great tax benefits. But how and when to get tax relief is different.
As a quick reminder:
- Taxes are not withheld when you invest money, and your contributions reduce your annual taxable income (as a traditional 401 (k) contribution does). However, you will ultimately benefit from a tax cut when you withdraw money in retirement. If you use the funds in your account before the age of 59.5, you will pay an IRS penalty of 10%.
- The government levies taxes when you fund your account, and contributions do not help reduce your annual taxable income. But you won’t pay any tax when you withdraw money in retirement. In addition, you can withdraw your contributions at any time without tax or penalty.
Using a robot advisor is a very easy way to start saving for retirement because it can help you decide if a traditional or Roth option is better for you. The Robot Advisor will fill your IRA with long-term, diversified investments and offer easy-to-use online tools that make retirement planning interactive and accessible.
Unlike a traditional 401 (k), your IRA contribution deadline is April 15, 2022. If you don’t reach the $ 6,000 contribution limit this year and fear a tax grab in 2022, you can still add money to your traditional budget. IRA no later than April 15th.
Likewise, if you wanted to start an IRA this year but forgot, you can still open an account and fund it in 2022, but count contributions around 2021.
3. Gig Workers and Freelancers: Consider One of These Accounts
If you are self-employed or self-employed, the word retirement can make you laugh.
Withdraw? Who can afford to retire?
You don’t have the option of opening a standard 401 (k) at work, so it can be difficult to know where to start.
Fortunately, there are five different retirement accounts for small business owners, the self-employed, and individual entrepreneurs.
- Traditional IRA
- Roth IRA
- Solo 401 (k)
- SEP IRA
- Simple IRA
A solo 401 (k) is an individual 401 (k) specially designed for a business owner with no employees.
It allows you to be both employer and employee and to pay contributions in both cases.
The contribution limit is very high: $ 61,000 in employee and employer contributions combined in 2022.
Solo 401 (k) are also available in Roth and traditional form, so you’ll have a choice when it comes to tax savings.
Another option is a SEP IRA. Unlike a solo 401 (k), you can add a few employees to a SEP IRA. Or you can use it just for yourself.
For a self-employed person, you can contribute up to 25% of your net income to a SEP IRA, up to a maximum of $ 61,000 in 2022.
As always, don’t contribute more than you can afford. Look at your cash flow and business expenses for the year to decide how much you can comfortably set aside each month.
4. Don’t panic, sell or withdraw money too soon.
Selling investments is literally one of the worst things you can do with your 401 (k) when the market goes down.
Many people learned this lesson around March 2020 when the stock market plunged – only to rebound a month or two later.
Remember this: The losses you see in your retirement account are not real losses until you sell. If you just wait for the market to recover, your investments will go up.
A single day, or even a few weeks, of volatility shouldn’t change your long-term savings plan.
A bear market is not the time to panic. In fact, savvy investors see it as a time to buy.
Cullen Roche, a Wall Street pro and founder of Orcam Financial Group, summed it up well:
“The stock exchange is the only market where things sell and all the customers leave the store. “
If there is a crash in 2022 and you have extra cash, consider transferring some of it to your retirement account. This allows you to buy additional stocks when the prices are low.
Here again, the timing of the market is delicate. A better long term strategy is the cost average in dollars, where you invest on a regular schedule no matter what is happening in the stock market.
If you have money automatically deducted from your paycheck and deposited into your 401 (k) or IRA, you’re already costing average dollars. You invest on a regular schedule (every time you get paid).
Whichever strategy you choose, don’t withdraw money from traditional retirement accounts early unless it is a real emergency.
5. Use part of your 2022 tax refund to buy bonds I
Inflation accelerated in 2021 – and it could persist for some time into 2022.
Investors tend to shy away from bonds when inflation is high. But some bonds, like Series I US Treasury bonds, offer interest rates indexed to inflation. This means that their interest payments increase as inflation rises.
In November 2021, the government set a staggering 7.12% interest rate for I Bonds purchased now through April 2022.
This 7.12% interest rate will not last forever. The Treasury will calculate a new bond rate I on May 1, 2022.
If inflation continues to rise, you could earn even more interest on your bonds. If it cools, your interest rate goes down, even though you can’t lose money on I bonds. You might not earn much interest for six months.
There are several ways that I Bonds can help you increase your retirement savings.
If you are a young investor who takes risks with a portfolio rich in stocks, you can diversify with a safe asset like I bonds.
Or if you are an older investor who plans to retire in the next two to 10 years, Bonds I offer a risk-free place to store money while achieving a much higher return than CDs or accounts. savings.
You cannot buy I Bonds through your 401 (k) plan or an online broker. You must purchase them online from the US Treasury Direct website. You can also choose to receive part of your tax refund in the form of paper I vouchers.
You can buy up to $ 10,000 of I Bonds each year, but you must wait at least a year after purchase to cash them. If you do decide to buy, make sure that you absolutely don’t need to access the cash until at least 2023.
6. Stop with the excuses and go for it, whatever your age
This may never be a good time to start saving for retirement. It can be confusing and intimidating to open your first 401 (k) or IRA. But the only way to overcome these fears is to go ahead and start.
We’ve got easy-to-follow strategies for how to save for retirement, whether you’re in your 20s or 60s.
Increasing your retirement savings doesn’t have to be dramatic or life changing. If you received a raise at work this year, for example, use a percentage of it to fund your future.
Even setting aside an extra $ 10 or $ 20 on every paycheck next year can make a huge difference.
The worst thing you can do is do nothing. Ditch the excuses in 2022 and start contributing what you can realistically afford for your retirement.
You’ll thank yourself later.
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