With difficult economic conditions in recent months, particularly high inflation and high interest rates, many Americans have had trouble sticking to their budgets and other financial plans. But when it comes to long-term goals like saving for retirement, it’s important to continue saving and investing money, even when it seems like it’s hard to do so.
“One rule of thumb is that you should strive to save roughly 15-20% of your annual salary” for retirement, says Nadia C. Vanderhall, financial planner, founder and principal strategist at The Brands + Bands Strategy Group. “But it can seem complicated to configure with your budget when it comes to building that up.”
However, the earlier in life you save for retirement, the more you can typically grow your retirement savings, due to the power of compound interest. Being able to invest money for several decades, rather than just trying to save a few years before your actual retirement date, tends to be a more viable approach.
To retire, you might need to save around 10 times your annual salary. Fidelity recommends saving “at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.”
So if you earn $100,000 per year, that would mean saving $1 million by age 67, based on Fidelity’s guidelines. As you can see, trying to put that much money away in just a few years probably isn’t feasible.
The good news is that inflation may be cooling, and you may be able to turn your attention more toward savings. Even if you can’t save 15% of your annual income each year, you can get closer to that benchmark by taking steps such as the below to boost your retirement savings.
5 great ways to boost your retirement savings
Here are five ways to grow your retirement fund now.
Open a high-yield savings account
One way to boost savings is to earn more interest income. The upside of high inflation, and subsequent rate raising by the Federal Reserve, is that many banks and credit unions are paying depositors more. You can find many financial institutions paying well over 4% annual interest with a high-yield savings account.
That interest, while taxable, can then be added to your retirement savings. If you have $10,000 in an emergency fund paying 4% interest, for example, that would provide $400 per year in interest without requiring much work or risk. That could be a nice boost, especially if you then invest that cash in assets with a higher return potential, like stocks.
“Even if you were to get a high-yield checking account, every quarter, taking those gains and moving them into your IRA is a smart move,” says Vanderhall.
Open a certificate of deposit (CD) account
Similar to the idea of using interest income from savings accounts to boost your retirement savings, you can also open CDs to earn more interest that you can add to your retirement portfolio.
Putting money into CDs can often mean earning a higher interest rate than what you would get with savings accounts, and CDs can provide more consistent returns.
One advantage of first putting money into CDs, rather than saving directly in your retirement account, is that the fees for early withdrawals from retirement accounts tend to be steeper than early withdrawals from CDs, so you can reduce this risk by saving in CDs first.
Ideally, though, you would let any CDs you have reach maturity so you can earn the full interest income to boost your retirement savings. Then, once CDs mature, you can use the principal as needed, such as if you have upcoming tuition payments or housing expenses, rather than having that money locked in a retirement account.
Consider how much you can contribute to a CD for a given term so that you can “still handle your day-to-day expenses now while building for the” future, says Vanderhall.
Current retirees or those nearing retirement also might choose CDs, even within their IRAs for tax purposes, over other investments due to their relatively safe, stable returns.
Earmark extra income
As you earn more money, you might be tempted to spend more. But proactively earmarking extra income for retirement can help you save more, without having to make as many tough moment-to-moment decisions regarding spending vs. saving.
“Anytime someone gets a raise to their salary—for example, 4%—they should immediately increase their 401(k) savings rate by at least half of the raise—2%, in this example. This way, they would still enjoy a 2% take-home pay raise now, while also increasing their ongoing 401(k) savings contribution rate,” says Thomas E. Mitchell, an LPL-affiliated CFP and senior vice president, OneAZ Wealth Management.
Another tip he has is to earmark extra paychecks for retirement savings, which can happen if you get paid every two weeks, instead of bi-monthly or monthly.
With an every-two-week pay cycle, someone would typically have two months per year where they get three checks instead of two, based on how the weeks fall. Budget in advance so that you don’t need those extra paychecks and can put them into your retirement account, he says.
Pay down high-interest debt
The recent high-cost environment has caused many people to rack up debt that carries high interest rates. Paying that down might seem like it leaves you with less money to put into your retirement savings, but it can actually be a good way to boost your long-term savings by lowering your overall expenses. “See what debt you have now that you could free up to give you that cash flow later,” says Vanderhall.
For example, you might want to pay down high-interest credit card debt so that you can ultimately spend less on interest payments and put more money into retirement savings.
If you have high-interest credit card debt, “seek to transfer the balance to a zero-interest rate card and pay off the principal balance in full. This will save a lot of money each month versus making minimum payments at high interest, as this is money that can be put toward your retirement future,” says Todd Slingerland, an LPL-affiliated financial planner and managing member, WealthOne.
Keep in mind, however, that some debt might be worth hanging onto. If you have a low mortgage rate, for example, paying that debt off early might lead to lower interest savings compared to what you could earn by investing that money in your retirement portfolio. So, compare debt interest rates to viable retirement returns to see which to focus on.
Look for insurance savings
Another way to boost your retirement savings is to free up money that you’re currently putting towards insurance premiums. Take a look at your current coverage to see if you might be spending more than necessary.
“You may have overlapping insurance policies which provide duplicate coverage, and/or you may be insured for a much higher amount than the replacement cost of your home, auto, or even your life insurance, for example, if you have no debts, your children are grown, etc.,” says Slingerland.
Also, you might find that you can get a lower rate by shopping around for new insurance providers. Or, maybe your life circumstances have changed, such as if you drive less than you used to because you’re now working remotely. If that’s the case, you may be able to update your car insurance with your new annual mileage and get a lower rate.
Putting any insurance savings into your retirement accounts can be a good way to save more without feeling like you’re pinching pennies.
The bottom line
While these five tips to boost your retirement savings might only give you a little bit of lift on their own, stacking them together could potentially lead to dramatic increases. Even if you saved an extra $90 per month and invested that in a retirement account where you earned an average annual return of 7% for 30 years, that would result in over $100,000.
So, whatever you can do to boost your retirement savings can go a long way toward setting you up for a more enjoyable retirement.