How to Max Out Your Retirement Savings

Max out your retirement savings with these 7 tips

I‘ve often wondered if the Apostle Paul was bad with his money. Yes, I’m talking about the guy that wrote most of the New Testament. In his letter to the church in Rome, Paul lamented that the things he wanted to do he doesn’t, and the things he hates to do, he does. My mom had her own translation of Paul’s missive–the road to hell is paved with good intentions.

And that brings me to retirement savings. In the 12-month plan to revitalize our finances, I listed maxing out your retirement accounts as the goal for January. Of course, everybody knows they should max out their retirement savings. But knowing we should do something and actually doing it are two totally different things. I guess not much as changed in the 2,000 years since Paul wrote his famous epistle.

So today we are going to look at seven practical tips and tricks to help you do what you already know you should–contribute the maximum amount to your 401(k), IRA, and other retirement accounts.

1. Start: Starting to save for retirement is like jumping into a cold pool for a morning swim–just do it. Once your in, the water warms quickly. With a 401(k), you can save very small amounts each month to start. Even if you can only afford $25 a month, start right now. Not tomorrow. Not next week. Today.

And for an IRA, you can start saving just $25 a month with Betterment. With Betterment, you can set up a diversified account in just five minutes. I know, because that’s exactly what I did. There’s no excuse. Just do it.

2. Keep it Simple: I’ve talked to a lot of people who are afraid of investing in the stock market. And their fear keeps them from contributing to a 401(k). Don’t let your fear dictate your actions. Every 401(k) plan I’ve ever seen offers well diversified mutual funds. Most offer funds designed to be a complete solution to retirement savings. Called target date funds, you can pick a fund based on when you retire. It’s that simple. And if you have any questions, the company that manages your 401(k) plan can help.

3. Avoid Roth 401(k) and IRAs: Let me first say that Roth retirement accounts can be a great way to save for retirement. But if you are really stretching your money to save for retirement, they may not be the best choice. With a Roth 401(k) or Roth IRA, you don’t get an immediate tax benefit. With a traditional 401(k) or deductible IRA, taxes on your contributions are deferred until you take out the money. The tax savings you’ll enjoy can really help if you are on a tight budget. And you can always convert to a Roth 401(k) later.

4. Save 50% of Raises: Each time you get a raise, increase the amount of your retirement savings. An increase equal to 50% of your raise is a good place to start. And if you are contributing to a traditional 401(k), remember that you still get a tax break on the contribution, so it won’t hurt as much as you may think.

5. Automate: All 401(k) plans that I’ve ever seen automatically take your contribution out of your paycheck. Not all IRA accounts, however, are automated. I’ve automated my investment account with Betterment, which takes out $100 every month from my savings account. Soon you won’t even miss the money. In my case, my Betterment account is now near $2,000, and the automation is a big reason why.

6. Get Help: If your employer matches some or all of your contributions, be sure to take advantage of this help. Employer contributions, however, kick in only if you are contributing to your 401(k). So don’t turn this help away. It may take you some time to maximize your contributions to take full advantage of your employer’s match, but use this benefit as motivation to save as much as you can.

7. Cut Back Without Sacrifice: All the tips above are of no use if you truly have no money left at the end of the month. If that’s you, read my book, 99 Painless Ways to Save Money. It’s a free eBook that is packed with tips and tricks on ways to save money without sacrificing your lifestyle. And if you don’t feel like reading an eBook, at least check out 55 Painless Ways to Save Money. Following even a few of these tips can easily free up enough money to start saving for your golden years.

Topics: Retirement Planning

10 Responses to “How to Max Out Your Retirement Savings”

  1. Christian L.

    I wouldn’t be so quick to dismiss Roth options. I understand the tax benefit is deferred, but isn’t that preferable for some people? I like the concept simply because I’d rather pay taxes now while I have job security and a steady income than when I’m retired and depend on all my savings. Does that make sense?

    I suppose it’s a matter of preference: taxed now or taxed later.

    -Christian L. @ Smart Military Money

  2. dusty rhodes

    The last great deal for however it lasts is the roth IRA.
    It behooves one the fund it as quickly as possible with
    as much as possible, and put it in the form of a self
    directed IRA. It is possible by investing in real estate
    for instance to make gains such as flipping a house
    or investing in first deeds of trust with a conservative
    equity position and put quick and massive gains back
    into your roith IRA. This is the only way I know of
    these days to create a massive retirement account
    that leapfrogs any other type of investment tax free.

  3. I agree that the biggest problem people run into is the choice to get started. I started small with one contribution a year. When I got my first job I made more regular payments by putting an automated plan in place. Having it go directly into my RRSP (Canadian) account was genius as I didn’t have time to think the money was mine to spend. Each year I bump up my monthly contributions and every year I put an additional lump sum down near contribution cut off time. The monthly process ensures that I’m contributing and the lump sum make me feel like I am tackling things with an added bump! Now the challenge will be to devote 1/2 of my raise to go directly toward my financial freedom!

  4. I disagree with the advice to avoid Roth IRA’s. A Roth IRA can act as a backup emergency fund, which might help a person be able to start saving rather than discourage them. You can withdraw the money you have put into a Roth IRA at any time for any reason without tax or penalty. You can’t access the earnings, but you can always get at your contributions. I have one, and it does double duty as both retirement savings and a true emergency fund.

    • Rob Berger

      Deb, you make a great point about the flexibility of a Roth IRA. And I know many people who have done just what you’ve suggested. I do think it is a bit of a double-edged sword. Sometimes the existence of a penalty on withdrawals keeps us from spending the money.

      • Good point. And personally, I feel that there isn’t enough of a penalty for liquidating your retirement funds. Time reported recently that something like 25% of retirement money was “leaking” back out in the form of unpaid loans, cash-outs, and and hardship withdrawals.

        But I still like the Roth! 🙂

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