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Never Too Late – Catching Up on Retirement Contributions

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When's the last time you check your 401(k) or IRA?

Be honest.

For most, it's something they ignore until the quarterly statements arrive. (Sometimes that's not even opened!)

Why is that?

One reason is that your portfolio isn't what you'd like it to be.

I get it.

I remember when I first started investing and being pretty embarrassed at how low it was. Which wasn't unexpected because I was only contributing $100/month.

That's all I had. I was busy trying to pay down my credit cards.

Maybe you're in the same boat – ready to kick things u a notch, but not sure how.

Catching Up on Your Retirement Contributions

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. You can always increase your contributions annually.

If you're looking for ideas, you can sign up for our FREE 5 Days to $5k. It's a week-long series to help you find, save, and make some extra cash so you can invest more.

Go for that 401(k) Match

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?

Some employers will offer a match for what you put in – effectively adding free money into your account.

Free money? Yes, please.

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 an additional $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.

If you haven't opened an IRA, no worries. There are some great low-key options that can make things easier.

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?

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