Saving for retirement can sometimes feel a bit like an afterthought. When you first started working, you probably chose a percentage to set aside in a company 401(k) and forgot to revisit that amount as your salary grew. Perhaps you’ve also never tried crunching your retirement number, instead just saving an amount that you wouldn’t really miss from your paycheck.
But just like with your salary, how much you save for retirement shouldn’t remain static. So in case you haven’t given much thought to your nest egg lately, here are four quick tips that can help you make sure you’re giving your future, retired self a little more love.
Get on that employer match
Don’t get us wrong — saving even 1 percent of your paycheck in a 401(k) is progress. But here’s the thing: If your employer offers a 401(k) match and you’re not taking advantage of it, you’re essentially leaving money on the table that could make a big difference in a few decades because of compound growth.
So take a look at your budget and see if you can swing meeting your company’s match amount. If you’re already saving, say, 4 percent and the minimum you have to contribute to get a match is 6 percent, you may decide that upping your contribution by just a little more in order to meet that threshold is worth some extra belt-tightening.
Add to your retirement fund when you get a windfall
Expecting a year-end bonus? Know that you get a tax refund every year? Consider putting a portion of that money toward your retirement savings to give your nest egg a periodic boost.
Up your retirement contribution whenever you get a raise
Getting a promotion, pay raise or new, higher paying job is a great time to reconsider what you put toward retirement. For instance, if you got a 5 percent raise, think about raising the amount you put in your 401(k) by an additional 1 percent. Raising your retirement savings at the same time your pay goes up helps you save more without feeling it as much in your take-home pay.
Figure out if a Roth or Traditional retirement account is right for you
One of the nice things about saving for retirement is that the government wants you to do it, which is why they offer some tax advantages to give you some extra incentive to save.
But whether you get those tax advantages now or later depends on the type of account you save in. In a nutshell, the contributions you put into a traditional IRA or traditional 401(k) help lower your taxable income now, but you’ll end up paying taxes when you make withdrawals later in retirement. For the Roth versions of these accounts, your contributions are post-tax, but you won’t pay taxes on your withdrawals in retirement. (For both, though, you can make additional catch-up contributions if you're 50 and older, although you’ll pay a penalty if you withdraw from your account before age 59½.)
What’s right for you will depend on your current tax situation, and a combination of both might actually make sense. Talk to a tax professional to decide whether to pay taxes on some or all of your contributions now or later.
This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.