How to Give Retirement a New Year’s Boost

New Year’s Resolutions are nothing new, and most of what is promised from within seems as though it feels strangely familiar from one year to the next.

Who doesn’t want to lose a few pounds?

How about those who want to do a better job of saving money? Both of those are wildly popular, and usually show themselves in the form of joining a gym, working out at home or trying to cultivate a situation where budgeting is more than just empty rhetoric.

But what about another financial, money saving tip that goes a step beyond simply day to day operations at home and either starting a non existent savings account or adding to what you’ve spent this past holiday season.

For that, you’ll turn to a little further down the road than the immediate want and need to start saving money tomorrow. What about the future, namely retirement? The question we fail to ask ourselves in the new year is what are we doing to save more for retirement or be better at thinking about life after work, where the income is consistent. Retirement often is overlooked by the masses, no matter if you’re 25 years old and on the verge of your first job or just a few months way from your 50th birthday when you realize you may have missed a lot of opportunity to do more with retiring.

No matter your age or financial structure at the moment, the new year, complete with those New Year’s Resolutions, is the ideal time to rethink retirement. Most of what New Year’s Resolutions are built on are a fresh start, and you should take that mentality and use it to refocus on your retirement more so than you already are (even if you’re of the opinion your retirement is just fine).

Why simply settle for “fine?” On the opposite end of the spectrum, why ignore retirement and assume that either doing nothing or the bare minimum is acceptable? The issue centers truly on retirement being forgotten, an afterthought if you will mostly due to the week to week, month to month financial strains, pains and planning that comes with every day life.

You can’t turn the proverbial blind eye on retirement, though, and these few steps are going to ensure your new year is a happy one, with plenty of more fruitful years to come all the way through your career and into retirement on the right track.

Start Now: Retiring is inevitable, but you can’t sleep on it

One of the bigger misconceptions about retirement is that it can simply be pushed aside with a wait and see attitude. That mistake leads to thousands of dollars left on the table, mostly due to apathy about retiring versus taking a more proactive approach to it.

If you’re younger, say in your 20s, retiring is quite a few years away, but that doesn’t mean you should put it off until you’re in your late 30s or early 40s (or later, quite frankly). That simply means you should act on it with more time in mind to save.

For example, if you’re 25 and you put away $75 per month with an average 8 percent return, you’ll save about $263,000 versus that same 35 year old who waits and saves $100. Even though you’re investing less 10 years earlier, you’ll earn more. That 35 year old will see about $150,000 when they hit 65.^[1]

Proof positive that starting early helps to the tune of about $100,000 in that example.

Conversely, even if you’ve sat and procrastinated about retiring and are of the latter age bracket, you need to start now as you still have ample time to build a retirement that will more than just suffice but instead flourish if done properly.

A little known (and used) fact is the 50 or older rule that the IRS allows. If you’re over 50, you can add $6,000 more each year to your retirement accounts. The limit is $18,000 so being able to have the green light to go above and beyond that should be taken into account and used.^[2]

The real advantage comes with doing more now, rather than waiting. The discrepancy in how hard or much you’ll have to save from 25 to 40 is eye opening. Consider that if you want to retire with $1 million dollars, you’ll only need to save about $4,800 per year annual into a retirement account; wait until 40 and that number sky rockets to $15,000 per year annually.^[3]

401, OK?: Invest in this, and watch the free money roll in

The new year brings with it, for most, a bump in your salary with a raise of some caliber. What better opportunity than to increase your 401K contribution.

Wait, what’s that? You’re saying you don’t participate in your company’s 401K plan.

That’s ludicrous, quite frankly, and needs a serious 180 degree thought in the opposite direction.

Your 401K is a license to make money, mostly due to the fact that your company is either going to match you dollar for dollar or at least 50 percent on the dollar.

Either way, it’s free money, even if the employer does put a cap on their match incentive. Most will only match to a certain percentage point, usually between 3 and 6 percent.^[4]

No matter, you should be doing this if for no other reason than the money is on a pre tax basis and you get money for putting in your own.

You should shoot for the full match value (and beyond), and if you can’t swing it, that means you need to take a look at your monthly budget and start cutting expenses to make that happen. Hitting the full contrition amount that your employer will match is always ideal, and if that means cutting your cable package at home or downgrading your cell phone plan, so be it.

As far as the raises go, for every 5 percent raise you get, contribute 1 percent back into your 401K for maximum effect on the bottom line.^[5]

Generally speaking, in order to retire comfortably, you should shoot for a 15 to 20 percent contribution.^[6]

Part-timer: Working more never hurt anyone’s retirement prospects

The new year brings with it hope and optimism financially as detailed with the first two items on this list, but if you’re not where you want to be, you can always work more or pick up additional income through some sort of side job.

This is a common practice followed by most if they’re either behind on retirement savings or just want to add that much more to it.

A lot of why a part-time job is needed centers more on the fact that you can’t contribute enough to reach your retirement goals on a current salary, and thus need the part-time work to actually achieve a benchmark you’ve set for yourself.

One example shows a 7 percent investment from a $48,000 per year salary into a 401K, and $1,000 into a mutual fund from a second job, both of which yielded $12,000 into retirement. By accounts, that $1,000 (in order to get to $500,000 by 65) is necessary or that goal will be only about 65 percent of the total, showing just how important and vital a part time job would be.^[7]

Part-time jobs also allow those wanting to save more for retirement to not have to necessarily worry about carrying massive amounts of debt into retirement. The average amount of credit card debt for someone who retires still is around $6,500, lower than the household debt average of around $16,000 but still a concern with no longer having a job and subsequent steady income.^[8]

Having a second job on top of a first job means you can devote more money toward debt now, rather than have to make it a worry in retirement. This allows you to make more than the minimum payment, and thus work toward paying down high interest debt, particularly of the credit card variety.

Early burden: Retirement hinges on steering clear of early withdrawals

The trials and tribulations, ups and downs of daily life often interfere with your retirement plans, and that is to be expected. How you react to that ultimately will determine your financial success versus fail rate.

And that means ignoring the temptation of take an early withdrawal from your retirement account. The new year means you’ll be digging through debt you’ve accumulated due to holiday spending. The average new debt from the holidays is nearly $1,000 (roughly $986), which means that money most likely found its way on to those pesky credit cards.^[9]

This isn’t a discussion about how to avoid credit cards or paying down debt, but unfortunately new debt means that some look for other means to pay it off, and that centers on your 401K or any retirement account in which you’re tempted to take from it in order to pay off toys, clothes electronics or whatever else was opened on Christmas morning.

But, don’t. Paying off debt with your retirement account might be something that is more feasible when you’re 55 or 60, and retirement is closer than you’d believe, but for the majority of individuals trying to save for retirement, leave your money alone.

Practically speaking, you’ll simply have to pay catch up and pay back that 401K loan but also lose out on penalties for early withdrawals.

A $10,000 loan can cost you about $3,500 in penalties if you’re in a common 25 percent tax bracket.^[10]

Even if you’re changing jobs, that isn’t a reason to cash out your 401K, either. Your outgoing company certainly can’t force the issue either. You’re better served to leave the money alone and roll it into your next 401K and avoid penalties and spending the money elsewhere while you’re between jobs. Yes, it’s scary if you’re not working and have a 401K sitting there, but the last resort should be using it to pay bills.

Retirement isn’t something to take lightly, particularly if you’ve spent the better part of your life working diligently and wanting something to show for it.

While some view retirement with “I’ll get to it later mantra,” others grab it and understand just how paramount it is to make it a high priority, financially.

The aforementioned tips are simple, easy to follow and won’t deter from your immediate financial needs and goals. In fact, if you follow them properly, they’ll only add to your acumen of establishing or growing a savings account and budgeting household expenses from one day to the next the next.

Chances are, you want to retire comfortably but aren’t quite sure how to go about it. The good news is this new year doesn’t have to be a repeat of previous ones, with countless endeavors that go awry and your financial goals ultimately pushed to the side for whatever reason, whether it’s a lack of motivation or education regarding how to go about it.

All the pieces of success are in place, so calling it quits one day and stepping aside from the workforce without worry starts this new year and continues until those Golden Years are gracefully bestowed upon you.

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