10 Ways to Grow Your Retirement Savings

Saving for retirement is critical if you want to live comfortably in your retirement years. To be able to do so, you need to build a large retirement corpus that will ensure that your savings last you in your non-working years. As per a recent report, almost three-quarters of Americans believe that the United States is facing a retirement crisis. The numbers back up the claim. The savings benchmark increased considerably by as much as 10% to $1.04 million in 2021 for retirees looking to retire and live comfortably after retirement. The picture becomes grim when one finds out that more than one-fifth of Americans have only $5,000 as retirement savings, and 15% of Americans have not saved for retirement. Due to insufficient savings saved up for retirement, more than 55% of workers plan to work in retirement. Among these people, 14% of people may have no other option but to work due to not having enough money to support their essential everyday expenses during retirement.

It is important to work on creating a custom retirement plan for yourself that takes into account your unique financial needs and goals. The aim should be to accumulate enough savings so that you can live a comfortable life and pursue any interests that you may have such as travel, supporting your children or grandchildren’s education costs, starting a business, and more. You should also be open to making adjustments to your retirement plan to be able to take advantage of any opportunities that may come your way. Consult with a professional financial advisor who can advise you on how you can boost your savings by using strategies such as cutting back on your spending, investing smartly, boosting your savings rate by maximizing contributions in tax-advantaged retirement vehicles, lowering your income tax, delaying Social Security benefits, and more. The advisor can also help you create a retirement plan to safeguard your financial future as per your risk appetite and future goals.

Below are 10 ways you can grow your retirement savings:

1. Start saving for retirement at the earliest

The sooner you begin saving for retirement, the more time your funds get to earn interest and grow. You can utilize the power of compounding to build a substantial retirement corpus. If you save and invest $10,000 today, this sum can grow and be worth up to $30,000 in ten years. You do not have to start saving big or invest a lump sum right at the beginning. Start small and gradually increase your savings rate. Set a savings target for yourself and try and stick to it. Do not think that you have missed the ship to start saving. As per a recent study, if you begin saving 15% of your annual salary from the time you turn 25, you would have sufficient funds to live an adequately-funded retired life. Let's say you start saving $6,000 each year and manage to save $30,000 in five years and invest this sum in a 401(k) or a similar tax-advantaged retirement savings account, your savings can grow anywhere between 5-8% each year. But if you start saving at 30 years of age, not only do you miss out on five years worth of interest and earnings on interest but you will also need to save at a higher rate to make up for the difference. Thus, it is in your best interest to start saving now and consistently meet your savings target. To ensure you meet your savings goal, you can also automate your savings.

2. Eliminate any high-interest debt

High-interest debt puts a lot of strain on your finances. The high-interest charges eat away at your savings leaving less money with you to save for retirement. Hence, you need to first pay off your high-interest debt. Doing so would allow you to save more and create a significant retirement fund. Take stock of your existing debt. Find out how much you owe in credit card debt, any small loans you may have taken out, mortgage payments, etc. Pay off the high-interest debt first to lower your interest outlay. Afterward, you can start work on paying off your low-interest debt. If you wish, you can take out a low-interest loan to consolidate your pending loans and gradually work on getting rid of your debt.

3. Manage your expenses by creating a budget and sticking to it

You can boost your retirement savings by reducing your expenses. Try and cut down on your discretionary expenses (such as eating out, going to the movies, online subscriptions, etc.) so that you can put more towards your savings. Create a budget to keep a tab on your discretionary and non-discretionary expenses. Track your spending and find out areas where you can cut down on your expenses and use that saved money to boost your savings. Seek guidance from a professional financial advisor who can advise you on creating a zero-based budget. In a zero-based budget, every dollar that you spend has a specific purpose. You could also follow the 50-20-30 rule of budgeting. Herein, you spend 50% of your income on your needs, 30% on your wants, and 20% on saving and investing. Having a budget helps you stick to the targets that you have set for yourself to be able to attain your long-term retirement savings goal.

4. Design a retirement investment plan that can be adjusted per your life stage

Reaching your savings target goal is merely the first step in securing your future retirement. You need an astute retirement investment plan that has been created, keeping your risk appetite and unique financial goals in mind to increase your money over time. Depending on your risk profile, you could invest in high-risk, high-rewarding securities like stocks, ETFs (Exchange-Traded Funds), commodities, currencies, real estate, and more. On the other hand, if you are conservative in investing, you could invest in low-risk securities like government and corporate bonds and other fixed-income securities. Take care to also modify your portfolio as you advance in age. As you near retirement, you may invest more in bonds and fixed-income securities to preserve your capital. However, if you are still further away from retirement, say ten years or more, you may consider investing more in equity and equity-linked securities. You should also aim to create a diversified portfolio having a mix of stocks, bonds, and other assets, irrespective of age. You can set the composition of equity and debt based on your risk appetite. However, take note not to completely ignore investing in shares (if you prefer investing in low-risk investments) or bonds (if you prefer high-risk investments). It is easier to weather market volatility when you have invested in a diversified portfolio.

5. Max out your 401(k) contributions

Several employers offer their employees the opportunity to invest in a 401(k) plan i.e. tax-advantaged retirement savings account where you can contribute pre-tax dollars to earn tax-free returns over time. The Internal Revenue Service (IRS) revises the contribution limits from time to time. For 2023, you can contribute up to $22,500 and an additional catch-up contribution of $7,500 if you are 50 years of age and up. You should aim to maximize your contribution limit for each year and make an effort to be up to date about any revisions that may take place. Usually, your employer may also match your 401(k) contributions. This holds as per a survey that reported that around half of the employers offer matching 401(k) contributions. This makes up for an average of 3% of your salary. You should aim to benefit from employer contributions as it is essentially ‘free money’ for your retirement. The total employer and employee contributions can be $66,000 for employees under 50 years and $73,500 for employees above 50 years for 2023, as mandated by the IRS. There is also another option that you can go for. Check if your employer also offers a Roth 401(k) plan. With a Roth 401(k) plan, You can contribute after-tax dollars to earn tax-free returns and make tax-free withdrawals in retirement, provided you meet certain conditions. Assess what your tax bracket will be in the future and compare it with the present tax rate. If you think you will be placed in a lower tax bracket, you can invest in a traditional 401(k) in the present. However, if you believe you would be placed in a higher tax bracket in the future, you can choose a Roth 401(k) to receive tax-free withdrawals during retirement. Rest assured that you would retain control of your traditional or Roth 401(k), even if you have quit your job or started working for a different employer.

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6. Invest in an IRA to boost your savings

An IRA or Individual Retirement Account is a tax-advantaged retirement account like a 401(k) where you can contribute pre-tax dollars to receive tax-free earnings. You can also make tax-free withdrawals, subject to some conditions, such as withdrawal at or after reaching 59.5 years of age. To open an IRA, you can contact an IRA custodian such as banks, trust companies, brokerage firms, federally insured credit unions, etc. The custodian invests your funds across different instruments - bonds, stocks, mutual funds, and ETFs at your direction. If you do not wish to invest in a traditional IRA, you can access other IRA options such as Roth IRA, SEP (Simplified Employee Pension), and self-employed IRA. The most popular among these is the Roth IRA. With a Roth IRA plan, you can invest after-tax dollars to earn tax-free growth on your funds. You can also make tax-free withdrawals provided you have held your Roth IRA account for at least five years and you are 59.5 years of age or above when making a withdrawal. You can save up to $6,500 or make an additional catch-up contribution of $1,000, bringing your total to $7,500 if you are above 50 years of age. You cannot breach this limit, and it is a blanket ceiling for all IRAs that you may have invested in. Moreover, you can contribute to a Roth IRA from your earned income only. Earned income, herein, refers to any income sourced from salary, wage, earnings from the business, disability retirement benefits, commission, bonus, assignment work, etc. Do note that income from interest, rental income, Social Security benefits, dividends, unemployment benefits, child support, pension, and annuity money is ineligible and not deemed as earned income for contribution toward a Roth IRA.

7. Invest in a Health Savings Account

You can boost your savings for retirement by investing in a Health Saving Account (HSA). An HSA is a tax-advantaged savings account wherein you can make annual tax-deductible contributions to cover your future healthcare expenses. As per a recent report, a 65-year-old retired couple may need to shell out $300,000 (after taxes) to pay for their healthcare expenses during retirement in 2021. An HSA offers multiple benefits to its investors. You can save your money, grow your funds tax-free via market-linked investments, and can tax-free withdrawals (if you are going to use the funds to cover your medical expenses). An HSA may serve well as a separate fund that you can use to pay for future medical costs during your retirement years. This can help lower the burden on your retirement fund and may allow you to earmark more funds towards other pursuits such as travel, starting a business, etc. However, if you withdraw funds from your HSA for non-medical expenses, you will be penalized. The IRS has set the annual contribution limit for self-only HSA at $3,850 and for family coverage at $7,750 for 2023. Also, if you are 55 or above, you can make an additional catch-up contribution of $1,000, bringing your total to $4,850 in a self-only HSA plan and $8,750 for a family HSA plan.

8. Make investments in alternative assets

Alternative assets are a separate category of investments that do not fit the category of conventional assets, such as equity, debt, or cash. Some examples of alternate assets include art and antiques, derivatives contracts, private equity, currencies, hedge funds, commodities, real estate, and managed futures. These are high-risk assets that are complex and are not strictly regulated. Compared to low-risk investments, alternate assets can generate exponentially high returns. Investing some funds in alternate assets can help create a well-diversified portfolio. Additionally, investing in alternative assets such as gold, oil, and real estate can also serve as a hedge against inflation. With that said, do keep in mind that these assets are not highly liquid compared to conservative asset classes, such as bonds and stocks.

9. Maximize your Social Security benefits by delaying your withdrawals

Though you can withdraw your Social Security benefits as early as age 62, it is in your best interest if you delay taking them. Doing so would not only allow you to earn better returns but also increase your monthly check. You can consider delaying your Social Security benefits to the age of 70 because the increases stop after you reach this age. Taking Social Security benefits early reduces your monthly check by a small percentage each month before your full retirement age, whereas delaying it till 70 increases it by 8% yearly. You can also consider working during retirement to finance your monthly expenses and defer your Social Security payments until your full retirement age.

10. Lower your taxability

Taxes have the detrimental effect of reducing your disposable income and, consequently, your savings for retirement. Since taxes eat up a large part of your income, you should look to minimize your taxes by employing smart tax-saving strategies. You can reach out to a financial expert who can advise you on identifying tax-effective strategies for investment, saving, spending, and more that may be best suited for you. The advisor can also help you in several ways, such as how to maximize your contributions in tax-advantaged retirement accounts, create trusts, make charitable donations, effect tax-loss harvesting strategies, offer lifetime gifts, and deploy capital gain offsetting strategies. The professional financial advisor can also help create an infallible estate plan in case of an inheritance or a large estate to minimize your tax burden and lower your inheritance tax implications.

To summarize

Having ample retirement savings to live your retirement years comfortably is an ideal goal for most investors. However, some people enter the retirement phase unprepared. It can be tricky to figure out how to grow your retirement savings. However, if you wish to lay a strong financial foundation for your future and ensure your future financial stability, it is important to learn how to effectively use the tips discussed in this article to grow your retirement savings.

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