By A. Eric Kauders, Jr., President and CEO, Old Point Wealth Management
Will you have enough money to retire?
That’s a tough question to answer in the best of times. Add in sky-high inflation, a healthy dose of geopolitical uncertainty and the looming expenses like college, buying a home or caring for kids or parents, and it all can feel like an impossible hurdle. Even with all this uncertainty, there is one thing that likely is certain: you’re probably not saving enough. So how are you supposed to find more money to set aside for retirement?
Here are six simple things you can do, even if you are close to retiring, to save more for retirement and not feel a pinch in your budget when you do it.
Pay yourself first. You might get a loan for a car or a house, but nobody will loan you money for retirement. So rather than paying all your bills first and then put money aside for retirement, flip the script. Pay yourself first and then pay the rest of your bills.
If your employer offers a retirement plan (like a 401(k) plan), you can contribute to your retirement automatically without having to make a conscious decision to save it. Talk with your human resources or payroll department to sign up for your employer’s plan ,and you’ll be surprised how quickly even a few dollars every pay period will add up.
Even if your employer doesn’t have a retirement plan, help may still be available. If you have another retirement account — an IRA, for instance — your employer may be able to direct money from your paycheck into that account just like for your 401(k).
Get free money. Many employers offer to match employee contributions to their retirement plan up to a certain amount. A common example is if an employee contributes 3 percent of his pay to his 401(k) account, the employer will also contribute up to 3 percent.
Why is this important? It’s free money — a chance to double your money, guaranteed. So, if you wonder how much to contribute to your retirement, just make sure it’s at least enough to earn all of the matching dollars your employer offers.
When you get a raise, give your nest egg a raise, too. No matter how much you earn, it will be easy to find ways to spend all that money. So when you get a raise, use that opportunity to your advantage. Use that extra money — or at least part of it — to increase your retirement savings. If you get a 3 percent raise, increase your retirement contribution by 1 percent or 2 percent.
And do it as soon as you get that raise. Remember — you won’t miss what you don’t see. If you automatically contribute a portion of your raise to your retirement savings, you won’t get used to spending it and you can increase your savings without cutting into your budget or your lifestyle.
Take it one step at a time. Coming up with enough money to retire may seem impossible. But the only way to eat an elephant is one spoonful at a time. Instead of going from saving nothing to saving 10 percent or more for retirement in one fell swoop, take baby steps to get there.
Start by saving what you can, and then increase your retirement savings just 1 percent per year. If you’re saving 3 percent of your salary today, increase it to 4 percent next year. That smaller increase is easier to handle, and you will still get to your target savings rate.
Consolidate your debt. With interest rates rising, consumer debt — credit cards, car loans, etc. — can be more expensive to pay off. If you consolidate that debt into one loan at a lower rate, it can save you interest and reduce your expenses. Take that extra money and contribute all or part of it to your retirement.
Adjust tax withholding. This can sound a little intimidating, but it might make a big difference. Take a closer look at the W-4 form you use to compute tax withholding from your paycheck.
If you regularly get a big tax refund, you’re withholding more than you need. Essentially, you’re giving the IRS an interest-free loan all year, and then waiting to get it back after you file your taxes. Who wants to do that?
Instead, re-calculate your withholding (either on the W-4 worksheet from your payroll department or with your tax advisor) to reduce the amount you withhold. Then use that extra money each pay period to increase your retirement contribution.
Saving for retirement can seem overwhelming, but in the end, it’s just about making choices and budgeting. Some of these tips are easier than others. The most important thing is to start somewhere.
If you have questions, talk with your employer’s HR department and with your financial advisor. They can help you understand all your options and help you decide today so you can enjoy financial security in the future.
A. Eric Kauders, Jr. is president and CEO of Old Point Wealth Management, a trade name used by Old Point Trust & Financial Services, N.A. He can be reached at 757-728-1893 or at firstname.lastname@example.org. Website is OldPointWealth.com.