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Wednesday September 20th 2017

How to Double Your Retirement Nest Egg

If you’re over 50 now and the retirement nest egg you had planned while you were younger was sidetracked by life, fear not. Although parental responsibilities, less than expected raises and higher than anticipated living expenses can cut into your retirement savings, you can still retire comfortably. If you begin now, there are a number of tools that can help boost your retirement account before the boss hands you that gold watch for all your years of service.

Increase Your 401k Contributions

If your 401k contribution does not equal the maximum amount of your employer matching contribution (up to 6% of your salary, depending on the plan specifications), you might consider increasing your contribution. There are few investments that will double your investment immediately and none that will do it on a tax deferred basis like the 401k does.

If you’re making $50,000 per year and your employer will match up to 6% of your salary, you are putting an extra $6,000 in your account annually, $3,000 of which comes from your employer. Making a contribution like this can add up quickly.

Even if you are already maxed on your employer matching contributions, you might consider contributing more into your account, since it is a tax deferred investment. The IRS permits you to contribute up to $16,500 into your account, depending on the plan limits. After 2010, the contribution limits will fluctuate depending on inflation. And if you are over 50, you can contribute an additional $5,500.00 annually as a “catch up provision.” This too will fluctuate in future years, depending on inflation.

Increase Your IRA Contributions

If you have a Roth IRA or traditional IRA, both are good retirement tools to use. With a traditional IRA, you receive a tax deduction up to the maximum allowable amount of your contribution. The interest earned on the account is also tax deferred, meaning you do not pay tax on interest earned until you withdraw the money. Plus there’s no reason you can’t have both on top of your 401k.

On a Roth IRA, you receive no tax deduction for your contribution. However, when you withdraw the money at retirement, you are not taxed on the interest earned. This can become important at retirement, when you will have less income to live on.

Both IRA and Roth IRA contribution limits have been increased in recent years. Contribution limits are now $5,000. If you are over 50, the limit is $6,000. Over 15-20 years, this investment will certainly add up, especially considering the interest accruing on the account.

For instance, if you are 50, and plan on retiring at 70, and invest $5,000 per year, and earn 5% on your investment, you balance at age 70 will be $185,542.21. If you have a traditional IRA, you have not paid tax on any of this money for the past 20 years. If you have a Roth IRA, you won’t pay tax as you withdraw it.

Use the Equity in Your Home

A house is still usually the biggest investment a typical person makes in their lifetime. In years past, most people had their mortgages paid down or paid off as they approached retirement years. This is not as true anymore, as many people will carry their mortgages into retirement.

If you are becoming an empty nester, you might consider downsizing. If you no longer need the room of a 4 or 5 bedroom home, consider moving down to a 2 or 3 bedroom home. You will not only most likely reduce your mortgage payment, but will also reduce your utility costs and real estate taxes. Consider these monthly savings as income, and use it to fund an IRA or increase the contribution to your 401k.

Consider a Second Job to Fund Your Retirement

This might be in the form of a second job or a small, home based business. Even a few hundred extra dollars per month will go a long way to increasing your retirement account. The internet has created reach to people on a world wide basis like never before. Use the web as your tool to increase your income, and use that income to increase your retirement portfolio. Better to work it now than be forced to keep working at retirement age.


Start your ROTH… Now!

If you are in your twenties, you should be thinking now about your retirement nest-egg. Why? Simply, the earlier you start the more you get to benefit from the power of compound interest? If you invest $1 when you are 25, that dollar may be worth as much as $21. If, however, you wait until you are 35, to save that dollar, it will be worth around $10, or less than half of the total amount (calculations assume 8% annual return). Every dollar you save when you are 25 is worth two dollars when you are 35.

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