Ways to Jump-Start Your Retirement Savings

Deferring Taxes is the New Black


Cheapism is editorially independent. We may earn a commission if you buy through links on our site.
Deferring Taxes is the New Black

Ramping Up for Retirement

While there are seemingly a million reasons why you might not want to take money away from your paycheck to save for retirement, there are a dozen or so great reasons you should. Saving a tiny bit each month can go a long way to increase your comfort as you reach those golden years. It’s easier than you might think, and it’s never too late to jump-start your retirement savings.

Sponsored: Find a Qualified Financial Adviser

Finding a qualified financial adviser doesn't have to be hard. SmartAsset's free tool matches you with up to three fiduciary financial advisers in your area in five minutes.

Each adviser has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you're ready to be matched with local advisers that can help you achieve your financial goals, get started now.

Your Company's 401(k) Plan

Invest in a 401(K)

A 401(k) can be the most important part of saving for retirement. When your company provides you with a tax-deferred plan run, don’t walk, to take advantage of it. Because the money is pulled out of your take-home pay before taxes, investing actually lowers your taxable income so you pay less income tax

Related: No Pension. No 401(k). How to Get By on Social Security

money in jars increasing

Set Up Automatic Increases

Most financial institutions suggest contributing 15% or more to your 401(k) plan. To get there, start with the minimum amount (typically 6%) and make small increases along the way. Your employer’s plan will dictate how often you may make changes to your 401(k) contribution. Some employers offer automatic increases, such as an annual increase program, which can be set to change incrementally each year to increase your contribution amount by a certain percentage each year.

Related: Things You Should Do If You Want to Retire Early

Neglecting Retirement

Set Up Your Own 401(K)

If your employer is a miser and doesn’t have a 401(k) plan for you, it’s not the end of the world. You can, and should, set up your own. Discount brokerages such as Fidelity and Ameritrade make it easy to enroll in a 401(k). Fidelity recently reduced the cap on it’s in-house mutual funds. While investors once had to save up $2,500 to open a 401(k), now it can be done for as little as $50.

Related: How to Protect Yourself from Financial Ruin in Retirement

stack of money
Andrey Maximenko/istockphoto

Consider Catch-Up Contributions

Don’t forget that you can contribute “catch-up” contributions. The Internal Revenue Service limit for elective contributions (pretax and Roth) is $20,500. If you are eligible to make catch-up contributions, that limit is extended by $6,500. These limits may increase each year to account for inflation. The IRS also limits total contributions (pretax and after-tax, from both employee and employer). For more information, refer to irs.gov.

Related: This Last-Minute Move Could Lower Your Taxes

Create A Spending Plan

Set Up an Automatic Savings Account

If you have a checking account, there’s no reason not to have a savings account and designate automatic draws from checking to savings. If your bank won’t permit you to open a savings account without a required minimum balance, look to some online banking institutions that don’t charge fees. Transferring as little as $15 a week can mean an additional $780 a year.

Related: Smart Investments to Make

Open A High Yield Money Market Account

Open a High Yield Money Market Account

Look for easy-to-open money market accounts — Sallie Mae and CIT Bank have had them in recent years, such as the former’s 0.55% annual percentage yield offer with no minimum deposit. Look for FDIC insured, low- or no-fee requirements when opening a money market account and the option to write checks or make withdrawals on it (up to six times a month without penalty) to move funds into a 401(k) or IRA to offset taxes and save more money. Credit cards also offer money market accounts. Discover is offering a zero-dollar minimum to open and no account fees.

Related: Is Your Tax Bill Too High? Ways to Save

Split Your Paycheck

Spilt Your Paycheck

Most companies pay their employees via direct deposit. If your company implements direct deposit, take the option of splitting your deposit into two, and make one go to a savings account. You can save either a fixed amount or a percentage. Not only will you not be tempted to spend your entire paycheck, but you will also start earning interest on that money.

Related: Reduce Your Health Care Costs With These Expert Tips for Seniors

Moyo Studio/istockphoto

Determine What You Need To Save

Retirement calculators such as one from NerdWallet can give a glimpse of what you should be saving each month to make retirement comfortable. The initial result may scare you, but don’t let it. If you have to save $250,000 for retirement and have 15 years to go, that’s $1,300 a month. It may seem like a lot of money, but invest in a 401(k) and some aggressive, high-yield mutual funds and you will get there in no time. 

Related: Types of Retirement Accounts to Build Your Nest Egg

bills calculator
Use Cash-Back Programs

Set Up Cash Back Rewards

Discover, Capital One, Citi, and Chase all offer cash-back rewards. Depending on the credit card you have, you may see cash-back rewards grow in the form of dollars, points, or miles. Redeem these for cash in the form of a statement credit, check, or deposit into a bank account. Some cards that are marketed as cash-back cards also let you use the points you earn for other rewards such as travel, gift cards, or merchandise. Cash back is a great way to kick-start your retirement savings.

Related: Best Credit Cards for Seniors

coffee to go

Round Up Your Purchases

Rounding up is a great way to save money without feeling like you are breaking your bank account to do so. Apps such as Qapital make saving easy and understandable. Pick your goal and the app sets up a savings rule and a round-up rule. Rules could be anything from, “Spend less than X amount on Starbucks per week and save the rest for a vacation” to “Round up amounts and deposit the rest into a savings account.” The app will also invest money into a diversified portfolio based on your income and risk assessment.

Related: How COVID-19 Is Changing Retirement in America

Want more information on how to make the most of your retirement money? We've got dozens more stories featuring retirement tips and advice.