A well-funded retirement is the goal for many people, but not everyone starts planning early enough to build the ideal portfolio of retirement accounts, savings, and other income sources.
If you find yourself later in life and need to catch up on your retirement savings, don’t worry—there are several effective strategies to help boost your nest egg.
Here are five ways to get back on track for a secure retirement:
1. Max Out Your 401(k) Contributions
If your employer offers a 401(k), this should be one of your top priorities. By contributing the maximum allowed amount, you can significantly boost your retirement savings. For those aged 50 and older, catch-up contributions allow you to put more into your 401(k) than younger workers.
The earlier you start, the more you can benefit. For example, starting contributions at 40 could help you accumulate significant wealth by retirement. While starting at 50 might limit your potential for hitting $1 million, it’s still a smart move to maximize this contribution and make up for lost time.
2. Tap Into Home Equity
Selling your home to fund retirement isn’t always the best route, but you can use the equity in your home to your advantage. Downsizing to a smaller home once you’re retired—or even before—can free up money that you can put into retirement savings.
By selling a larger home and moving to a more affordable property, you’ll have additional funds to bolster your nest egg.
3. Contribute to a Roth IRA
A Roth IRA offers a unique benefit: Your contributions grow tax-free, and withdrawals in retirement are also tax-free. The catch is that you contribute after-tax dollars, but the potential long-term growth makes it a powerful tool for building wealth.
Roth IRAs do have income limitations, but if you start contributing earlier, you can save a significant amount—up to $6,000 per year. By consistently contributing over time, you’ll have a valuable source of tax-free income when you retire.
4. Itemize Your Deductions
Reducing your taxable income is another smart way to boost your savings. By itemizing your deductions instead of taking the standard deduction, you can lower your adjusted gross income (AGI), which in turn reduces your overall tax burden. This extra tax savings can be funneled into your retirement accounts.
Common itemizable deductions include mortgage interest, charitable donations, and medical expenses. Speak with a CPA to determine whether itemizing makes sense for your situation and to ensure you’re maximizing your deductions.
5. Don’t Overlook Disability Insurance
Life is unpredictable, and an injury or illness can derail your financial plans. Protect your savings by securing disability insurance, which can provide you with income if you are unable to work due to a medical condition or injury. It’s crucial to have this coverage as a safeguard for your retirement savings, especially if you’re getting closer to retirement age.
Check with your employer to see if disability coverage is part of your benefits package and consider purchasing additional coverage if needed.
By implementing these strategies, you can take control of your retirement savings and improve your chances of having a comfortable retirement, even if you’re starting later than you would have liked.
