If you haven't begun saving for retirement or you are discouraged, thinking that you haven't saved nearly enough and need to catch up, don't panic. With a solid plan and the flexibility to handle life's curveballs, you can greatly improve your chances of retiring with a portfolio that can last as long as you do.
Tip No. 1: Get the most out of your 401(k) plan
An easy way to bolster your retirement savings is to contribute at least enough to your 401(k) to meet your employer's match. If you don't, you're forfeiting free money from your employer that could be used to build your retirement nest egg.
For example, the most common 401(k) match is 50 cents per dollar contributed, up to 6 percent of an employee's pay. Using this formula, if you were to earn $75,000 per year and save at least $4,500 in your 401(k) plan, you could receive another $2,250 from your employer in matching contributions.
Tip No. 2: Take advantage of “catch up” provisions
In an effort to help Americans who haven't been able to save enough for retirement, Congress added this new contribution option to 401(k) retirement plans. If you're age 50 or over, the IRS will allow you to increase your contributions in excess of your 401(k) plan limit ($18,000 in 2016) up to 6,000 at a time when retirement is getting closer. Yes, you'll need to save more, but at the same time you're substantially reducing your tax bill.
Tip No. 3: Max out your plan
One of the best things you can do is max out your retirement plan contributions each year by auditing your spending. See what you can honestly cut out of your monthly expenses to save for retirement. Look for that extra $20, $30, or $50 dollars and use that as your additional contribution. Remember, the more you put in, the more money you have working for you. This means your money will work harder on your behalf.
Tip No. 4: Implement the 1 percent rule
Retirement planning isn't a set-it-and-forget-it proposition. Try to increase your 401(k) contribution by at least 1 percent each year until you've reached the maximum. Many plans allow you to automatically set your plan to increase at the beginning of every year so you don't forget.
Tip No. 5: Don't borrow from your plan
There are several reasons why you shouldn't borrow from your 401(k). For starters, most plans won't allow you to make additional contributions until your loan balance is paid. So essentially, you're not saving money for your retirement by taking a policy loan and defeating the whole purpose of the plan. Also, if you are unable to pay back the loan, it is treated as a withdrawal, and the balance is subject to income taxes in addition to the 10 percent early withdraw penalty if you are under age 59½.
If you haven't been saving, it's hard to go from $0 to $1,000 a month in savings overnight. Still, the more you put away each month and the longer you have until you retire, the easier it is to reach your goal. When getting started, instead of taking an all-or-nothing approach, focus on what you can start doing today, and then increase your contributions when you can.