Short on Retirement Savings? Here’s How to Save More

August 30, 2013

Have you ever compared your current retirement savings balance to where it should be, according to the advice of a financial adviser or online calculator? Most Americans haven’t. According to the Employee Benefits Research Institute, roughly 60% of Americans have less than $25,000 set aside for retirement and about 30% have less than $1,000. If you haven’t already done so, check on your retirement accounts and see where you stand. If you’re behind and want to catch up, consider the following five strategies.

1. Refinance Your Home Loan
Refinancing rates are still relatively low, but don’t wait too long to take advantage of them – they’ve gone up over 18% since last November. If you think you won’t qualify for a refinance because your mortgage is underwater (you owe more than your home is worth), programs do exist for your situation. The two most significant are the government’s HARP 2.0 program and the FHA Streamlined Refinance. Get a few quotes from qualified mortgage refinance professionals in order to make the best decision.

2. Devote All “Extra” Money to Retirement
If you receive a raise at work and your monthly finances are functioning smoothly, contribute that amount to your 401K. If you receive a $1,000 bonus at the end of the year, shoot that into your IRA. If you get a lot of cash-back rewards from your credit cards, invest that “extra” money into your retirement as well. Usually, this is money that you weren’t counting on, so investing it in your retirement allows you to boost your portfolio with no actual effect on your budget.

3. Rethink Investing in Your Kids’ Education
Providing for your kids is a given, but if you’re significantly behind on your retirement savings and you’ve currently got a 529 college savings plan set up for your children, you can do both you and your kids a favor by re-purposing those funds. Your youngsters are going to have plenty of federal and private loans available to finance their schooling. If you, however, want to get a loan for personal expenses during retirement, you’re going to have a much harder time finding a willing lender, and you don’t want to have to rely on your children for funds.

4. Start a Side Gig
Ever thought of yourself as a small business owner? Neither did I. Yet, I currently run a successful Internet reselling business and work from home full-time writing about personal finance. To decide where to start, choose an area you’re passionate about and have expertise in. Then, find a way to translate that into a money-making opportunity. It could be a consulting business in your current industry, a craft-based venture, or something service-oriented. Regardless of what you decide, using your spare time to generate cash rather than catching up on TiVo or Facebook is an excellent way to boost your retirement contributions.

5. Put Off Purchasing a New Automobile
If your current car is fully paid off and you’re thinking about a new set of wheels, consider this example before you pull the trigger: Assuming the car you’ve set your sights on requires a monthly payment of $350, try putting off your purchase for two years, and you’ve saved up $8,400 to invest in your retirement. If you’re 20 years away from calling it a career, consider how much interest that amount of money could generate. Compared to your need for a new car, the prospects of a more comfortable retirement should easily tip the scales.

Once you’ve created a surplus, make sure you invest it properly. If your employer has a 401K match program, make sure you’re invested at least up to that match percentage. Next, invest in your Roth IRA. The contribution limit for all IRA accounts in 2013 is $5,500 ($6,500 if you’re over 50). Look for investments with an expense ratio (what it costs an investment company to operate a fund) of less than 0.5% – any more than that can eat up your returns like you wouldn’t believe, especially over the long-term. It would be a shame to see all your hard work building up cash for retirement go to waste all because it wasn’t invested effectively.

What are you doing to save more for retirement?