7 Ways to Boost Your Savings Before RetirementRetirement
Money Done Right does not accept sponsorships to promote particular products or services. However, we may receive a commission if you purchase or sign up through links on this page. Here's more information about how we make money.
It’s easy to picture your retirement years as being completely carefree. For many folks, these golden years might involve taking time to travel, seeing family and friends, or taking a step back to enjoy the rewards of a successful career.
However, smoothly transitioning from your working years to a pleasurable retirement lifestyle requires a sound financial roadmap and lifelong discipline.
Many Americans aren’t prepared for the costs associated with retirement. In fact, one in five Americans has no retirement savings at all, and 46% are simply guessing at how much money they’ll need during retirement.
Thankfully, regardless of the current state of your retirement savings, it’s possible to boost your retirement savings before reaching retirement age.
Let’s examine seven effective strategies you can implement to help make the most of your retirement years.
#1: Don’t Delay Saving Money
While this may seem like an obvious tip, there are many misconceptions about the best time to start saving for retirement.
Many young adults may feel they should start saving for their retirement once they have a full-time job. However, the ideal time to start saving is when you begin to make any income at all.
The benefit of saving at an early age is immense, provided you invest your money to leverage the power of compound interest.
According to Vanguard, saving approximately $4,500 annually over the span of a 45-year career would leave you with more than $1 million by the time you reach retirement. In contrast, for every decade of delayed savings, you’ll have to save three times as much each month to catch up on missed growth.
It doesn’t matter if it’s a college job or your first full-time job. The moral of the story is simple: begin saving money as early as you can.
#2: Tackle High-Interest Debt
Beginning to save for retirement as early as possible is ideal. However, creating a plan to pay off debt is another way to improve your long-term financial health.
Once again, thanks to the power of compound interest, saving money and investing is generally more impactful than earning more income. In order to put your money to work, getting rid of high-interest debt as fast as possible is critical.
It’s still possible to invest your money while you’re in debt. However, if you have debt that carries an interest rate of 10% or more, you should prioritize eliminating that debt before focusing on investing.
Categories of debt that often carry painfully high interest rates include:
- High-interest credit cards
- Payday loans
- Personal loans
Working to pay off other types of debt such as student loans or a mortgage is still important, of course. However, these lower-interest forms of debt are more manageable and can still allow many individuals to save and invest their money.
#3: Invest Accordingly
If you’re looking to truly boost your retirement savings, creating a suitable investment strategy and investing for the long term should be a priority.
If you’re an investor, time is your best friend. In order to put your money to work and to grow your net worth, it pays to have an investment strategy in place and to stick to it.
Investing for retirement is different than investing for a short-term gain or when you’re just starting out as an investor. If you want to truly enjoy retirement and avoid dealing with consistent financial stress, you’ll need a long-term strategy to reach the amount of money required for you to retire.
Calculating your financial needs during retirement is the first step in creating a realistic retirement investment plan.
There are different ways to calculate your required retirement nest-egg amount. You can use a variety of online retirement calculators to get a general idea of how much money you’ll need to retire, but be wary of making common mistakes or being overly optimistic.
Factors such as inflation, healthcare expenses, and longer lifespans are examples of variables that can increase the actual amount of money you’ll need to comfortably retire.
Once you have a comprehensive understanding of your nest-egg requirements, you’ll have to consider a variety of investment options and what’s right for your financial situation.
In general, it’s wise to avoid putting your wealth in a single basket, especially when dealing with income that you’ll rely on to sustain yourself (and possibly your loved ones) for the rest of your life.
Seeking professional advice from a licensed financial advisor is one option you can take to create an investment strategy that serves your needs. Additionally, you should also educate yourself on the different types of retirement savings accounts and the options you have at your disposal.
There’s no cookie-cutter method to investing for retirement. But if you understand your options and diligently put your money to work (while diversifying your risk with a variety of investments), you can successfully increase your retirement savings and grow your savings.
#4: Take Advantage of Retirement Catch-up Contributions
If you’re nearing the end of your career and feel behind on your retirement savings, there are methods you can use to catch up.
Anyone over the age of 50 by the end of the calendar year is eligible to make catch-up contributions. According to the IRS, contribution amounts up to $6,500 in 2020 may be allowed for the following plans:
- Any 401(k) other than a SIMPLE 401(k)
- A 403(b)
- A Salary Reduction Simplified Employee Pension Plan (SARSEP)
- A governmental 457(b) plan
Catch-up contributions were created to assist older savers with preparing for retirement, so don’t neglect your contribution room if you’re able to maximize your annual savings.
#5: Start a Profitable Hobby
Starting a hobby or learning a new skill during one’s retirement years is a great way to remain active and engaged.
Additionally, picking up the right sort of hobby or side hustle before you reach retirement is an excellent way to boost your retirement savings.
Thanks to technology, it has never been easier to start a profitable side hustle or monetize something you already enjoy doing.
Of course, there are obvious choices like driving for Uber or delivering food, but you there are plenty of other options out there for anyone looking to make extra income each month.
Some unique side hustles with the potential to increase your monthly income include:
- Walking dogs with Rover or Wag (or pet-sitting through these platforms)
- Teaching English online with ESL tutoring platforms such as VIPKid
- Renting out a spare room in your house with platforms like Airbnb
These are simply a few money-making ideas to get started. Even a few additional hours of work every month can have a significant impact on your annual income and ability to save for retirement. So don’t be afraid to try something entrepreneurial!
Additionally, you can also consider monetizing a retirement-friendly hobby to preserve your ability to earn extra income after you’ve stopped working.
#6: Adopt Frugal Habits
As we age, certain lifestyle changes can work in our favor when it comes to spending less money. From downsizing to becoming a single-car family, there are many ways to dramatically cut down on the cost of living during retirement.
Granted, some of these drastic lifestyle changes are not feasible in our pre-retirement years. If you have a family, moving into a smaller house or ditching a family vehicle may simply be out of the question.
However, there are still ways to adopt minimalist living tendencies and cut down on monthly expenses (making it easier to invest more money each month).
Beyond the basics like learning how to track expenses and budget, there are several ways to reduce your monthly expenses.
Deciding to try no-spend challenges or simply making a conscious effort to reduce your spending on materialistic purchases is one overarching strategy you can adopt.
Other methods for decreasing the monthly cost of living include:
- Calling your cable or internet provider to renegotiate rates (or using a variety of bill negotiation apps to do this automatically)
- Investing in energy-efficient appliances or smart home technology. A properly programmed smart thermostat can save up to $180 a year in energy costs
- Cutting purchases like alcohol, cigarettes, or non-essentials from your shopping list
- Getting in the habit of meal planning and cooking at home rather than eating out
- Shopping on discount days or during sales and stocking up on essentials when the price is right
These are just several ideas to get the ball rolling on your path to increasing your retirement savings. If you can make minor adjustments to your lifestyle that cut down on bills without dramatically decreasing your quality of life, ultimately, you can save more money for retirement.
#7: Invest in Your Health
Downsizing or simplifying your life during retirement might cut down on costs. Despite these potential savings, increases in healthcare costs that are often associated with aging can present older adults with considerable financial challenges.
According to Fidelity, the average American couple will require an estimated $285,000 for medical expenses incurred during retirement, not including long-term care.
Healthcare is simply one of the main expenses in retirement, but it’s important to keep this reality in mind well before approaching the average age of retirement.
One of the most effective ways to increase your retirement savings and to reduce the risk of incurring hefty medical bills in your later years is to invest in your health throughout your life.
Simple acts like cutting out junk food or cigarettes from your daily consumption will have an immediate benefit on your wallet, but this is just scratching the surface.
Maintaining a healthy body weight and cardiovascular health can have an immense impact on your wallet. Studies show that regular physical activity can improve health and overall quality of life.
Additionally, remaining active is crucial for reducing the risk of chronic conditions such as Type 2 diabetes, cancer, heart disease, and many other illnesses.
Considering the price tags tied to many chronic conditions, taking steps to reduce the likelihood of them occurring is in your utmost interest (from both a financial and a quality-of-life perspective).
Engaging in regular exercise, eating a well-balanced diet, and limiting your consumption of alcohol are just a few ways to improve your health. Invest in a solid pair of running shoes, a gym membership/road bike, or anything that will encourage you to remain active throughout adulthood.
It might seem counterintuitive to spend money to save. However, investing in your own well-being is one of the smartest financial decisions you can ever make.
Just ensure that you follow through with your plans to adopt a healthy lifestyle. A gym membership doesn’t do any good if you never actually show up!
The Bottom Line
When you really get down to it, the quality of your retirement years isn’t determined by a handful of decisions you make in your 50s.
Rather, successfully transitioning into retirement depends on a lifetime of smart financial decisions and persistence. Having enough retirement savings in place to enjoy your retirement and maintain a high quality of life is possible, provided you stick to a plan.
Start saving money as soon as you can and learn the basics of prioritizing debt and investing your money for long-term growth. At the same time, work to increase your income and savings rate, and don’t be afraid to adopt frugal practices to cut down on monthly bills.
And perhaps most importantly, never neglect your personal health. Maintain a well-rounded diet and keep up with physical exercise throughout your life in order to reduce the risk of disease and to improve your quality of life.
By following these seven simple steps, you can successfully increase your retirement savings and make the most out of an exciting new stage of life.
Danielle Kunkle Roberts is a founding partner at Boomer Benefits. A nationally recognized expert in the Medicare insurance industry, Danielle is a member of the Forbes Finance Council, where she frequently writes about Medicare and other baby boomer-related personal finance topics. Learn more about Danielle.