Understanding Personal Finances – Spring 2024
You took an important step when you started saving for retirement. Now you need to regularly monitor your progress toward achieving your retirement goals. At least once a year, or whenever you have a major life change like a marriage, divorce or new job, check up on the nest egg you’ve accumulated so far. If you find your savings falling short of the balance you should have by now, here are four potential ways to put your retirement dreams back on track.
Try to identify discretionary spending that you could cut back on or eliminate. Take a hard look at things like dining out; going to the movies, sporting events or concerts; cable, satellite or fiber optic TV; and vacation travel. Even smaller expenses can add up over time. For example, if you normally dine on restaurant lunches on workdays, bringing your lunch to work once a week could save you around $40 a month, or $480 a year, if you work 48 weeks. If you contribute that $40 a month to your 401(k), 403(b) or 457 workplace retirement plan and your savings earn a 6% average, annual, after-tax return compounded for 35 years, your total savings and investment earnings would come to $56,988.
Especially if you’ve managed to cut costs, see if you can save more in your workplace retirement plan. In 2024, the maximum pretax contribution you can make to a 401(k), 403(b) or 457 plan is $23,000. Generally, if you’re 50 or older or will be by the end of 2024, your top pretax and/or Roth contribution for the year is $30,500, which includes a $7,500 catch-up provision.
If your employer will match a portion of your retirement plan contributions, try to contribute at least enough to take full advantage of the match. Otherwise, you’re essentially leaving free money on the table.
Once you’re taking full advantage of any available employer match on your retirement plan contributions, consider funding an IRA in addition to that plan.
You generally have two kinds of IRA to choose from: