Never Too Late – Catching Up on Retirement Contributions

The two of you are looking at your retirement accounts and you’re not happy with their current balance. One reason may be that you haven’t really focused on investing. Perhaps you’ve had to deal with paying off debts first or maybe you had to take care of other family obligations – whatever the case, you realize you’re behind where you need to be on your retirement goals.

While it’s never too late to start, you will have to adjust your finances now to avoid troubles later with retirement. The good news is that it can be easy to set up and follow through.

Take 20% Off the Top

When setting aside a goal for investing, try to shoot for at least 20% of your income. If you can’t start off with 20%, then start somewhere and increase your contributions annually (see below for a painless money tips).

Grow Your Contributions Faster with 401(k)s

Employer sponsored plans like 401(k) can be a fantastic tool for building your retirement plans. One benefit of saving in a 401(k) is that your contributions are tax deferred.  That means that you lower your taxable income now while investments grow for retirement later.

Another huge benefit of some 401(k) plans is the employer match. Some employers will match a percentage of your retirement contributions – effectively adding free money into your account. That can help you as the money grows along with your contributions, speeding up the progress that you make.

One downside with 401(k)s is that your investment options can be limited. Check to see the fees involved with the investments (lower is better- so your money is growing, not paying managers). You may want to see if you can get low cost index funds as a part of your portfolio.

Painless money option: Commit a portion of every raise you two towards retirement contributions. You want to make it easy for you to make your goals – saving as soon as you get a raise means you won’t notice it in your budget. It’s a win-win situation.

Maximize Your IRA Investments

If you need another option for investing for your retirement, then you should check out contributing to an IRA. Whether you choose a Roth or a traditional IRA, there are some great ways you can use it.

Right now you can contribute up to $5,000 into one each year (starting 2013, you can contribute $5,500). If you’re 50 or over you can contribute and addition $1,000 which brings your total to $6,000 ($6,500 in 2013).

Don’t forget that these are for individuals, so a couple can contribute $10,000 into IRAs (between them) for 2012 and $11,000 for 2013.

Once again looking for low cost index funds can be beneficial for your portfolio. According to MorningStar, the low cost funds have another advantage:

In every single time period and data point tested, low-cost funds beat high-cost funds.

It’s also a passive way to invest for those looking at an easy way to manage their money.

I you haven’t opened an IRA yet there are a few great options available for you. 

  • Betterment
  • Vanguard
  • Sharebuilder
  • T. Rowe Price
  • Charles Schwab

The options above all offer low cost and well respected index funds. If you’re an investor looking for a simple, no hassle option, then I think Betterment could be a good fit for you.

Painless money option: If you don’t have much to contribute for your IRA and you have money leftover in a 401(k) from an old job, you may want to rollover that money into your IRA.

Thoughts on Catching Up with Retirement

How are you doing with your retirement contributions? If you need to catch up with contributions, have you changed your strategy?

Disclosure: Information sourced from Genworth Financial

Photo Credit: Behavior Gap

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Elle Martinez helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second..

Comments on this entry are closed.

  • Roger Wohlner Dec 5, 2012, 10:32 pm

    Good article. Schwab, T.Rowe, and Vanguard are all solid via my personal and professional experience. I’ve heard good things about Sharebuilder. Betterment, however scares me, I’d be very loath to suggest that anyone invest their hard-earned money there, my opinion for what its worth.