5 Ways to Save for Retirement Savings in Challenging Times: Experts weigh in

pension savings function

Over the past two years, American workers have experienced a one-two hit of a pandemic-driven recession followed by a rapid rise in inflation. Both have widened the savings gap and heightened concerns about financial security, especially when it comes to retirement savings.

According to a survey conducted Financing our future, more than a third of Americans with household incomes below $50,000 report having fewer savings than they did before the pandemic, and more than half of all Americans are concerned about their current financial situation. Not surprisingly, many workers turn to their employers for help, with 87% saying it is very or somewhat important that their employer offers retirement benefits.

The good news is that there are plenty of ways for the average American to help their retirement accounts thrive, even during uncertain times. Here are five expert tips to help you increase your retirement savings.

Make sure you get full employer compliance

Many companies offer matching contributions to your retirement account up to a certain percentage on top of your regular salary. If this is news to you, be sure to talk to your employer to see if they offer suitable options.

Maggie Klokkenga, a certified financial planner, advises all employees to take advantage of this benefit. “It’s free money for you, so make sure you at least deposit enough to get a match.” In terms of return on investment, the dollar to dollar ratio is equal to 100% profit. Looking ahead, it is unheard of to find any opportunity that double your investment without taking on excessive risk.

Match details vary by employer; some may offer a 100% match on the first 4% of your salary you pay, others may match 50% of the first 6% of your salary. However, the idea is the same. This is a great incentive to contribute to your retirement account and can be one of the easiest ways to increase your savings rate.

Optimize Asset Allocation

How much of your money should you have invested in stocks, bonds, and cash? Some investors take a “set it and forget it” approach to asset allocation, which can be detrimental to your long-term goals. Early in your career, it may make sense to take on more risk in the expectation of greater long-term rewards. As you get older, most experts advise a more conservative set of investments to ensure a stable income. passive income retired. Many employer retirement plans offer free consultations with a financial advisor or online tools to help you choose your strategy and balance your portfolio.

financial coach Kelly Long recommends that you make the most of the benefits offered by your pension plan. “One of the biggest mistakes I see young workers make is that they invest too conservatively, but they don’t know it until they meet with a financial advisor or use a tool in their retirement plan that offers advice about how best to invest based on their age and desired retirement age.”

Take advantage of automatic premium increases

Another feature of retirement accounts that many people don’t know about is the setting to automatically increase your contribution amount. “If you signed up years ago and haven’t increased your dues, see if you can increase them by a few percentage points. Very often people get a raise but forget to increase their pension plan contributions,” recommends Stephanie McCullough of Sofia Financial.

With the auto raise option, you can easily increase your contributions every year without thinking about it. If you time this with an annual pay rise, you can add, for example, an extra 1% to your retirement savings each year without feeling a pay cut.

Use HSA for Tax Free Growth

If you have a high-deductible health insurance plan through your employer, your Health Savings Account (HSA) is an often-missed opportunity to fund future expenses, says Blaine Tidermanfinancial planner at Progress Wealth Management.

While you usually use HSA to cover ongoing medical expenses, Tiederman recommends that you don’t touch your balance unless absolutely necessary, but pay from your bank account instead. “[HSA accounts] financial planners are loved everywhere,” he says. Tiderman explains that HSAs are a trinity of tax credits: tax-free contributions, tax-free growth, and tax-free withdrawals if you use them for qualified medical expenses.

If you’re worried about not being able to use your HSA balance in the future, consider the amount of money you could spend in retirement just for medical expenses. With an average retired couple in need $300,000 or more saved to cover health care costs after retirement, it may make sense to accumulate savings intended to cover medical expenses.

No employer plan? Use an IRA instead

Even if your employer doesn’t offer a retirement plan, there are options to invest in other tax-advantaged accounts, such as Individual Retirement Accounts (IRAs). “If your employer doesn’t offer a retirement plan, don’t panic,” Klokkenga says. “You can open a traditional IRA where you can get a tax deduction for your contribution, or you can contribute to a Roth IRA where the distribution is tax-free because you’re making contributions on already taxable dollars.”

Although IRA annual contribution limits are lower than employer-sponsored 401(k) plans, you can still contribute $6,000 a year from 2022, or $7,000 if you’re 50 or older.

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