Whether you're 20 or 60, retirement can feel a long way off as you rise early for another day at the office. Saving enough money to climb down off the corporate ladder is challenging and takes decades, but with smart planning and dedication, you can shave a few months -- or even years -- off your remaining time in the workforce. Here are four moves to help get you there.
1. Contribute as much as you can to your retirement accounts
This seems obvious, but it's worth mentioning because it's the best thing you can do for your retirement. Even if you can only afford to set aside a few dollars each month, it's better than not contributing anything. The money you set aside benefits from compound growth over time, and the longer it remains in your account, the more time it has to grow. A $1,000 contribution could be worth $7,612 after 30 years with a 7% annual rate of return. But if you waited just five years to make the same contribution (with the same rate of return), it would only be worth $5,427 by the time you needed to begin drawing upon it. That's why your early retirement contributions matter so much more than your later ones.
You're allowed to contribute up to $6,000 to an IRA in 2019 and $19,000 to a 401(k). If you're 50 or older, you can contribute an extra $1,000 to an IRA and $6,000 to a 401(k) in catch-up contributions. If your goal is to retire as early as possible, save as much as you can each month. But be careful not to exceed the contribution limits. If you do, and you don't withdraw the excess before your tax return is due, you could pay a penalty to the IRS on it. If you have extra savings you'd like to stash away, consider placing them in a taxable brokerage account or in a health savings account (HSA) (If you qualify by having a high-deductible health plan) for your retirement healthcare expenses.
2. Take advantage of 401(k) matching contributions
If your employer offers a 401(k) match, you should contribute at least enough money each year to claim the full amount. This is free money that reduces the amount of your own earnings that you must set aside for retirement.
Be aware of your 401(k)'s vesting schedule. This determines when employer-matched funds are yours to keep. Your plan may offer immediate vesting, but more commonly, you have to work for the company a certain number of years to become fully vested. Or the company may offer graded vesting where, for example, 25% of employer-matched funds are yours to keep after one year, 50% after two years, and so on. If you quit before you're fully vested, you'll lose some or all of the funds from your employer's 401(k) match, though not your own contributions.
3. Cut spending
Being frugal can help your retirement in two ways. First, by cutting expenses today, you free up more money for retirement savings. Evaluate your monthly budget and look for areas where you could cut back, like dining out or clothing purchases. Consider canceling any subscriptions you don't use. Then, put those extra savings in your 401(k) or in an IRA.
Second, if you carry your frugal lifestyle into retirement, you'll reduce your living expenses. Retirement may also bring new opportunities to save. If you're thinking about moving, you could downsize your home, which could help reduce your monthly payments, insurance premiums, and utility bills. You could also move to an area with a lower cost of living.
4. Seek new sources of income
If you can't slash your monthly expenses, look for opportunities to increase your income. That may mean pursuing promotions or working overtime at your current job or starting an extra job. Think about what you're good at and how you could monetize those skills, but weigh this against the potential costs of your second job. The more you earn today, the higher your Social Security benefits will be when you eventually take them.
It may have direct costs, like transportation and work supplies, or indirect costs, like increased food bills because you're eating out more instead of cooking at home. You also have to be careful not to work yourself too hard, or your performance at your regular job may suffer.
Retiring earlier isn't easy, but if you try just one or two of these tips, you'll begin to see a difference in your retirement account balances.