Retirement Savings Tips
We all know we need to have a plan to save for retirement, but how do we put that plan into action? Sometimes, the easiest way is to make a simple commitment to cut expenses or save more each month. Here are just a few of the ways to increase the amount of money you save for retirement each month.
Get a Second or Part-Time Job
A second or part-time job is great way to save extra money for retirement. Living off the salary you're paid for a full-time job and banking the money you make in the part-time job allows you to build your regular savings, brokerage, and IRA accounts.
If you have a special skill that allows you to work from home, you may be able to reduce the amount you pay in income taxes. For example, if you use a room in your house solely for the purpose of conducting business, and you have earned income for that business, you may be able to deduct the room as a business expense. And regardless of whether you run your business as a sole proprietorship or a corporation, you can contribute 100% of your earned income up to $49,000 (for 2011) to a SEP IRA.
Even though some might think it's a little silly, the Internet also provides a way to make extra money. While most writers, bloggers, and affiliate marketers don't make enough to live on, they often make a little extra "pin money" each month. An amount as small as $500 each month can be used to pay off debt, start a college fund for a child, or saved for retirement.
Live Off of One Salary
If you and your spouse both work, try living off of one salary. (This is also a good exercise to prepare for a job loss, pregnancy, or disability.) Living off of one salary and banking the other is a very quick way to save for retirement. For example, if the after tax amount of the salary is $50,000 and it earns 5% each year, the total amount of the account could be worth almost $1,736,000 in 20 years.
Paying down debt with the second salary is also a very smart move. Paying off high-interest loans like credit cards first, followed by lower interest loans like student loans or a mortgage means that less money will be wasted on interest. Your goal should be to earn interest yourself, not to earn interest for a debtor. If you and your spouse have significant debt, the first goal of living off of one salary should be to become debt-free.
Renting Out Part of the House
While it definitely isn't an option for everyone, renting out an extra room in the house is an easy way to make extra money each month. Provided local zoning laws allow for it, renting out a portion of the house could mean that the homeowner lives rent-free. In other words, a tenant could be paying an amount in rent that's equal to or very close to the mortgage payment. If there's no mortgage, that extra money in a savings account each month will go a long way toward building retirement income.
If you live in commuter town, consider renting out your driveway as a parking space. If you own a business and have extra office space, consider renting a room or even a desk. There might be an entrepreneur in the neighborhood who needs office space but isn't ready to make a big commitment yet.
Track and Consolidate Expenses
Tracking expenses is a critical part of understanding how you'll be spending money in retirement. Some people prefer to use a pen and notebook to track expenses while others prefer a spreadsheet like Excel. Still others are more comfortable using accounting software programs. Whichever method is used, the goal is to find out where the money goes each month and what can be eliminated.
The key to saving in realizing that time is on your side. A little bit saved every day for 40 years comes out to a lot. Most of the time we don't realize how much money we're spending on certain items each month. For example, cutting out a stop at Starbucks or Dunkin Donuts every morning can leave $2.00 in your pocket each day. Using coupons at the grocery store or buying on-sale items can reduce the month's food bill significantly. And walking or riding a bike instead of driving increases overall health and reduces the amount of money spent on gas and car maintenance.
Check out the local library for newspapers, books, and dvds. Some libraries also show movies on weekends, have free concerts, and offer free lectures on a variety of financial planning and retirement topics.
Take Advantage of Discounts
Some health insurance companies offer partial or full reimbursement for gym memberships, Weight Watchers, and other services that promote health and wellness.
Some employers allow a split deposit to be made via direct deposit. If your employer offers this, ask to have a portion of your pay deposited directly into a savings or money market account rather than having the entire amount deposited into your checking account. This kind of forced savings encourages savings on a regular basis.
Contribute to an IRA
Even if the amount you contribute to a traditional IRA isn't fully tax-deductible, make regular deposits anyway. By contributing to an IRA you'll be taking advantage of tax-deferred growth on the full amount of the account.
Take a Shot
If you have a "gut feeling" about a new company, take a shot at buying stock. While it's not a good idea to speculate with a large part of any account, sometimes a small local company grows into a national or international giant. Getting in on the ground floor can boost the returns of an entire portfolio. The key to picking a good stock is making sure: 1) the company has a solid balance sheet, 2) the company has strong long-term growth potential, and 3) the stock isn't already overpriced or over-hyped.
Investing in a local business can also be good way to make additional money for retirement. If the business is making money and needs to find investors to secure additional growth, the residual income could be a great source of cash during retirement. As with any investment, don't risk more than you can afford to lose.
While we've covered the basics of retirement planning here, there is much more to securing a great retirement. To make sure you're on the right track, contact a licensed financial advisor. It only takes a few minutes, Start Now.
More Retirement Planning Guidance
- Retirement Planning Guide — The complete guide to retirement planning.
- Retirement Income Options — Explore your retirement income investing options.
- Building a Solid Retirement — A practial guide to implementing your retirement plan.
- Early Retirement — What it takes to plan an early retirement.
- Inflation — Understanding how inflation affects retirement planning.
- Assest Allocation & Diversification — Learn how to manage investment risk.
- Retirement Pitfalls — Common retirement planning mistakes you'll want to avoid.
- Tax Considerations — How to minimize tax burden while saving for retirement.
- Retirement Planning FAQ — Frequently asked questions about retirement planning.