Unfortunately, one of the biggest financial mistakes people make is not saving enough money for retirement. Reasons many people cite for not saving enough for retirement is that it’s a long way into the future, or that they don’t plan on retiring.
But the truth is that no matter how far away retirement seems, you need to be saving for it from your very first paycheck because retiring is expensive!
Luckily, if you realize you aren’t saving enough for retirement, there are some steps you can take to correct this mistake. Here are four:
Consider Alternative Investments
If you haven’t been saving enough in your traditional investments, perhaps you should consider putting your money into something that can generate a passive revenue stream, like real estate.
Another option is to consider putting money into a Health Savings Account because a large portion of retirement expenses are health-related.
Although retirees do have access to health plans, like Medicare, these options do not cover all of their health care costs. This is where an HSA could be helpful for covering medical costs that they’d have to pay for out-of-pocket or out of the money they’ve put away in their retirement savings account. Contributions to an HSA are also tax exempt.
Take on More Risk
More risk, more reward, right? As long as the market is on an upswing this is definitely the case. Usually as we age, financial advisors will tell us to lean toward taking less risk in our investment portfolios, but if you haven’t saved nearly enough for retirement, you might not have this luxury.
By maintaining a higher risk portfolio, you’ll usually earn more interest. But you have to be careful or you could also lose the retirement savings you have already amassed.
Utilize Catch-Up Contributions
Being behind in retirement savings is not unusual, so the IRS has rules in place that allow individuals over 50 years of age to contribute extra each year as a “catch-up” contribution. These rules apply to nearly every type of retirement savings plan, like an IRA. The catch-up contribution limit for most of these plans is $6,000/year, but that amount is adjusted upward nearly every year.
If you’re behind on saving for retirement this is a great option to pursue once you’ve already maxed out your ordinary retirement contribution limit for the year. Plus these catch-up contributions are tax exempt, just like regular retirement contributions.
That $6,000 may not seem like a lot of money, but if can have a significant impact on your retirement savings if you take advantage of it every year and allow it to earn interest just like the rest of your retirement savings.
Work Longer or Work Part-Time
Although most of us dream of retiring as early as possible, it may not be an option if you haven’t been saving for it. Sometimes the only option is to work longer and retire later in life, or taking on a part-time job during retirement to supplement the savings they have accrued.