Saving for retirement is a monumental task that often takes decades of diligent saving to achieve. It often feels like slow going, especially when you're young and your nest egg is pretty small. But there are things you can do to speed up the process. Here are three steps that are proven to help your journey toward retirement.
1. Claim your full 401(k) match
A 401(k) match is a bonus your employer may offer you, but only if you contribute some of your own money toward retirement. It's not something that all companies offer, unfortunately. But if yours does, claiming it should be your top priority after paying your monthly bills.
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Check with your company's HR department if you're unsure how its matching formula works and to see how much of your match you've already claimed for the year. If you're new to the company, you should also inquire about its vesting schedule. This determines when you can keep your employer-matched funds if you quit your job. Quitting before you're fully vested will cost you some or all of your match.
Once you know what you need to do to claim the full match, try to boost your contributions accordingly. Even if you're only getting a few hundred dollars extra today, it could easily grow into tens of thousands of dollars after it's been invested for a few decades. That will take some of the savings burden off of you, helping you reach retirement more quickly.
2. Max out your retirement accounts whenever possible
You don't have to stop contributing to your 401(k) once you've gotten your full match. You're allowed to contribute up to $19,500 to a 401(k) in 2021 or $26,000 if you're 50 or older. These limits will rise to $20,500 and $27,000, respectively, in 2022.
If you still have extra money left over, you can stash it in an IRA. These have lower contribution limits -- just $6,000 per year for adults under 50 and $7,000 for adults 50 and older. But IRAs give you a lot more flexibility in terms of what you invest in than 401(k)s. You can also decide when you want to pay taxes on your savings. Traditional IRAs give you a tax break today if you pay taxes on your withdrawals while Roth IRAs work the opposite. You don't get a tax break today, but you get tax-free withdrawals in retirement.
Finding money to max out your retirement accounts isn't always easy, but it might be possible to scrounge up some extra cash by reworking your budget. Try to keep discretionary purchases to a minimum and look for ways to save on everyday items, like cooking instead of dining out. Even if you aren't able to max out your retirement account, every dollar you contribute will help you out in the future.
3. Automate your contributions
Automating your retirement contributions reduces the risk that you'll forget to make them. For those prone to making emotional investing decisions, it also eliminates the need to check your accounts as often. That will help you reduce the temptation to buy or sell your investments based on their recent performance.
Fortunately, most retirement accounts make it pretty easy to automate your contributions. Your 401(k) usually takes the money directly out of your paycheck every month. Most IRAs enable you to link a bank account and set up automatic transfers as well. Consider setting this up if you haven't already.
These three steps alone aren't enough to help you retire by the end of the year or even within a couple of years. But it's important to stick with them anyway. They can help you retire months or even years earlier than you'd initially planned, and when you're finally ready to quit the workforce, you'll be glad you put the extra effort in.
