It’s a staggering and sobering – statistic: More than half of Americans surveyed say they have less than $25,000 saved for retirement. Even those with greater resources can’t be sure they’ll live the comfortable retirement they envisioned.
The good news? If you feel the need to give your nest egg a serious boost, it’s not too late. The earlier you start catching up, the easier it may be for you to reach your retirement goals – and answer questions about how you’ll fund that dream retirement.
Maximize Your Savings
The most obvious way to get a jump on your savings is to put as much money as you can into your retirement accounts. If your employer has a 401 (k) plan, contribute the maximum the IRS allows: $16,500 for 2010. By maximizing your contribution, you take advantage of any matching contributions your employer offers and put your dollars to work in tax-deferred investments, amplifying your potential annual gains.
Are you more than 50 years old? If so, the IRS will let you put an additional $5,500 for 2010 into your 401 (k) to “catch up,” and an additional $1,000 in your IRA. While you may not get a match on your extra 401 (k) contribution. you’ll still receive tax deferral on any investment gains more than you’d likely get in a savings account or investing on your own and paying annual capital gains taxes.
Set Goals. Be Aggressive
Once you’ve maximized your savings, take a long, hard look at your household budget and investment portfolio.
The aforementioned contributions to your retirement accounts should appear as line items on your budget along with your mortgage payment and other essentials like food, clothing and utilities. Before budgeting for large leisure expenses, consider diverting some of these funds to an additional savings or investment account. True, they won’t be matched or tax-deferred, but they still translate to extra money down the road.
Although people approaching retirement usually take on more conservative investment strategies, you should consider resisting this outdated tendency. Because today’s investors have longer life expectancies than previous generations, they generally have a longer investment horizon and can consider using a moderately aggressive investment strategy into their 50s and 60s.
Create Other Income and Investment Sources
Catching up can also mean increasing your income and utilizing your assets. Some ideas include:
• A new job. Are you worth more than you’re making? You may want to clean up your resume and start interviewing to bring in additional income and better retirement benefits.
• Starting a side business. A business to complement your “day job” can yield additional income for direct investment or retirement savings. What’s more, you may be able to deduct as much as a quarter of your self-employed income on your taxes.
• Maximize your real estate. Do you own a home at the beach or in the mountains that you rent out seasonally? If so, be sure you are getting the most out of your investment properties. Often a few minor improvements can increase the weekly or monthly rates you can command – more money you can save.
Whether you just need to pad your savings for a little extra security or you are well behind in your retirement savings plan, you have options to help make up for lost time. You may be able to catch up with proper guidance, aggressive saving and appropriate investing strategies. Speak to your financial advisor about how you can get started.
Stewart A. Ritter is Senior Vice President – Investments for Wells Fargo Advisors in Westfield. New Jersey. He is frequently the guest speaker for local clubs and organizational meetings discussing timely investment topics. He writes articles on various financial issues, which he feels are important to readers and his clients. He also writes a monthly investment newsletter, which is available free of charge. To receive his free newsletter, and for more information concerning investments, Stewart may be reached at his office at Wells Fargo .Advisors LLC, at 155 Elm Street in Westfield, NJ 908-789-7802
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