Saving for retirement is often a lifelong endeavor. Although retirement savings goals are unique for every person, most financial experts recommend saving 10 to 15 percent of all annual pretax income. Many aging adults wonder if the amount they have saved will be enough to allow them to live comfortably through their golden years. Fortunately, there are several ways to boost retirement income and accumulate extra savings for future expenses.
Open a Tax-Advantaged Retirement Account
Tax-advantaged retirement savings accounts refer to tax-deferred accounts, accounts exempt from taxation or offer other types of tax benefits. The two main types of tax-advantaged retirement accounts include Roth IRAs and 401(k)s.
If a traditional 401(k) is opened, the account holder receives a tax break in the year in which they contribute money. Contributing more to the account may result in some of that money coming back in the form of a tax refund. However, during retirement, the account holder is taxed on withdrawals which are treated as ordinary income.
With a Roth account, the tax breaks come during retirement. Contributions to the account are made with after-tax dollars, meaning no further tax will need to be paid on withdrawals. Choosing a Roth account can also help account owners avoid or reduce taxes on Social Security benefits.
Start Saving Early
It makes sense that the earlier a person begins to save for retirement, the more money they accumulate over their lifetime. Ideally, a person should start saving for the future in their 20s. However, regardless of age, it is never too late to start saving for retirement.
Putting more money into a retirement savings account early in life can also generate higher savings due to compounding interest. Contributions will start to develop their earnings and boost the amount of retirement savings.
Maximize Social Security Benefits
Besides savings accumulated in retirement accounts, many seniors depend on their Social Security benefits to pay ongoing expenses. Social Security is guaranteed for life and is protected against inflation, making it an important source of income for retirees. The right savings strategy can also help maximize these benefits.
The best way to maximize Social Security benefits is by working at least 35 years or longer. The Social Security Administration (SSA) uses a specific formula to calculate the amount that a person receives in Social Security benefits in retirement based on the average earnings for the 35 highest-earning years after adjusting for inflation.
If a person does not have 35 years of earnings, the additional years may be negatively influenced with $0 in wages. How old a person is when they retire will also influence how much they receive Social Security benefits. Individuals who retire at full retirement age will typically receive the standard benefit.
Take Advantage of Employer Matching
Today, many employers offer to match employee 401(k) contributions, meaning the employer contributes a specified amount to an employee’s savings plan based on how much the employee contributes.
In some cases, this is a 100 percent match, and for every $1 that the employee contributes, the employer also contributes $1. However, some employers will only match up to a certain percentage of the employee’s contribution and up to a certain maximum limit.
If an employer offers matching on a 401(k), employees should contribute the maximum amount each year to boost their retirement account. It is important to keep in mind that all contributions made to a 401(k) account are 100 percent vested and at no point can be forfeited.
Work Side Gigs to Earn More Money
One of the most effective ways to boost retirement savings is by getting a second job, whether part-time or full-time. This extra money can then be put directly into the retirement account up to the allowed annual limit.
Many retirees also choose to work during their retirement years to maintain a comfortable lifestyle. If a person has already reached full retirement age, they can work as much as they would like without affecting their Social Security benefits.
Utilize Catch-Up Contributions
Catch-up contributions are a type of contribution that people ages 50 or older can make to boost their retirement savings. Eligible adults can make extra contributions into their retirement account up to a certain annual limit. Traditional IRAs, Roth IRAs, SIMPLE IRAs, Simplified Employee Pensions (SEPs) and employer-sponsored 401(k)s are all eligible for catch-up contributions.
If a person could not save as much as they would have liked for retirement, catch-up contributions provide another opportunity to accumulate funds. When catch-up contributions are made, the total contribution amount is larger than the standard contribution limit.
Speak with an Experienced Wealth ManagerAbout Retirement Income
Running out of money during retirement is a common fear among aging adults. Boosting retirement income can help provide a sense of security later in life. For more information or to speak with a wealth manager about saving for retirement, contact the financial professionals at Campbell Wealth Management.