8 No-Brainer Ways To Kick-Start Your Retirement Savings, According To A Financial Planner
Fantasizing about the glorious day when you get to leave the workforce and do whatever the heck you please can feel like a great escape. Maybe you dream about globetrotting, finally pursuing those passion projects you've been putting on the backburner, swimming in a pool of cash, or simply spending more time with your people.
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But what if you don't have as much as you would like — or anything at all — saved for your nest egg? Saving for retirement can feel intimidating, and it's something that many people put off thinking about, especially when it's decades away.
If you haven't started saving for retirement, you aren't alone, by any means. According to recent research by the professional services firm PwC, 1 in 4 Americans don't have a retirement account. Plus, only 36% feel that they're on track for retirement.
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Saving for a big goal that's 40-plus years away is no easy thing — especially when there are forces at play that make it hard to save, including socioeconomic and systemic issues, income inequality, and the simple fact that things are getting more and more expensive.
Luckily, you don't need a ton of dough to start saving, and all it takes is a few simple moves to get started. We spoke with Jovan Johnson, a fee-only certified financial planner and founder of Piece of Wealth Planning, for some practical ways to get that retirement savings going:
1.Johnson suggests opening a Roth IRA, which is a retirement account that you can open for yourself (no employer help needed) through your bank, credit union, or brokerage. If you get a tax refund, he suggests stashing some of that cash in this account. And you can also make regular contributions throughout the year.
According to Johnson, a Roth IRA is your friend. That's because the money you put in will be taxed on the front end, or when you make contributions. When it comes time to take money out in retirement, you get to experience the sweetness of tax-free withdrawals. For 2021, if you want to contribute to a Roth IRA, you can't make more than $140,000 a year if you're filing taxes as a single person, or $208,000 if you're filing jointly. And if you're under age 50, you can contribute up to $6,000 this year.According to the National Taxypayer Advocate, the average tax refund in 2021 was $2,827. Let's say you sock away 10% of that toward your retirement. That's close to $300 right there. Aim to put aside 20% and you're looking at nearly $600.
2.If your workplace offers a 401(k) or 403(b), take advantage. These employer-sponsored retirement accounts let you squirrel away a portion of your paycheck into your retirement savings, and they usually offer a range of investments you can choose from.
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A big perk is that they come with tax advantages. The dollars you put in are tax-deferred, which is a technical way of saying the money that goes into your retirement account comes from your earnings before state or federal taxes are withheld. In turn, your contributions bump down your taxable income, which can lower the amount of taxes that you pay.You just need to enroll, set up an account, and start making those contributions. If you have any questions whatsoever about how your specific plan works, reach out to Human Resources at your job, or your plan benefits administrator to get clued in.
BTW, if your employer doesn't offer a retirement account, you have other options. Check out what another BuzzFeeder learned when she talked to a financial planner about saving for retirement without a 401(k).
3.There's another important thing about employer-sponsored plans like 401(k)s and 403(b)s: If your employer offers to match what you put in, you'll want to try to contribute *at least* the amount you need to scoop up that money, says Johnson. It's basically free money!
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For example, when I had a day job and my workplace offered a 401(k), I would get a match where they put it an additional 50 cents for every dollar I contributed, up to 6% of my salary. Another job offered a generous match of 5% as long as I contributed 5% too. That's free money that you could be leaving on the table if you don't meet the requirements for the match. If you can't swing it to get the match on your current salary, aim to contribute what you can, and bump your contributions up along the way.
4.Johnson also recommends following the 1% rule. In other words, every year, commit to boosting your retirement contributions by 1% of your income. "This slow increase should not alter your lifestyle much," says Johnson. "You should barely feel the increase, but it will definitely pay off."
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Whether you put money into an IRA or an employer-sponsored plan, it's a fool-proof tactic to save more consistently. That's because committing to upping your savings by a smaller amount is far more doable and realistic than trying to go up by a massive percentage. "You get used to a certain lifestyle, a certain dining-out budget, a certain entertainment budget," says Johnson. "If you slowly increase by about 1%, the damage isn't as bad versus if you do a huge, 'I'm going to go from $10,000 to $20,000.' That will blow up your budget."
5.Did you get a sweet raise this year? Or maybe you're making bank on your side hustles? Consider tapping into some annual bonus, some of your money from a raise, or a bit of "extra cash" to bump up your contributions to your retirement plan.
Maybe commit to setting aside, say, 20% or 25% of every raise or bonus for savings, says Johnson. "While it would be nice to put all of it in, you want to enjoy yourself," says Johnson. "You should keep at least some of it to splurge — at least 10% to 20% to splurge on yourself. Everybody deserves that, but some of it should be going toward retirement."
6.Besides cash from a job bonus or raise, cash back credit cards can surprisingly be a great way to save more toward retirement, says Johnson. "The amounts may seem small, but they add up. And with compound interest, that amount could be very significant in retirement." Johnson personally redeems a few hundred dollars in cash back each year to put toward his retirement savings.
So let's say you put away $200 in cash back rewards every year for the next 40 years. At a 7% average return (it might be less or more, depending on the stock market), that adds up to a grand total of nearly $43,000.
The key is to be methodical about it and make it part of your routine. Whether you redeem cash back every few months or once a year, aim to put at least some of that money into your nest egg.
Oh, and if you're planning to take advantage of credit card rewards, make sure you pay off your card in full each month so you don't get stuck with high-interest credit card debt.
7.Oftentimes, a Health Savings Account (HSA) is overlooked as a retirement vehicle. If you have a qualified high-deductible health plan (HDHP), you may be able to contribute to an HSA, says Johnson. You can use the money in an HSA for qualified medical expenses, which include out-of-pocket medical expenses, equipment, and supplies.
And you may even have the option to invest the money in your HSA. "If you don't need the money for medical expenses, I would definitely recommend investing it," says Johnson. "While you might not use the HSA funds for medical expenses, you could potentially set aside money earned for your medical nest egg, which is one of the biggest expenses in retirement."
Plus, HSAs have a triple-tax benefit. First, contributions are made with pre-tax dollars. Then, the money you put in grows tax-deferred, and finally it comes out tax-free when it's used for qualified medical expenses.
8.And lastly, get into a savings-first mindset. If you get in the habit of paying yourself first, you'll be able to turn small amounts of savings into a larger fund over time.
Are you saving for retirement? Why or why not? Share your experiences in the comments.
And for more stories about life and money, check out the rest of our personal finance posts.
