2020 was a tough year for a lot of people. Millions of Americans lost their jobs. Others held their jobs but saw their income take a hit. Many people fell behind on retirement savings in 2020, neglecting their IRAs and 401(k)s to focus on near-term needs.
If that happened to you, there's zero shame in that. The past year was unprecedented. Almost everyone was caught off-guard when the pandemic hit. If you're starting 2021 in a better place financially, it pays to do what you can to make up for a less-than-stellar 2020 on the savings front. Here's how.
1. If you're getting a raise, bank it
It's hard to save money we're used to spending. If you're getting a raise in 2020 -- even if it's just a small cost-of-living raise -- then you have an opportunity to pump that extra money into your retirement plan. If you've managed to get back on your feet based on your current earnings and you're now looking at a boost, that cash can go directly into your IRA or 401(k).
2. Find one expense to cut back on
You may have been so overwhelmed by the pandemic's upheaval that you weren't able to sit down, map out a budget, and figure out how to trim your spending. It's time to take these steps. First, list your expenses so you know what they look like. Next, find at least one spending category to reduce. This could be a small change, like swapping out your cable plan for a more affordable streaming option. It could be much more substantial, such as moving to a home with significantly lower rent. Either way, that money can then go right into your retirement plan.
3. Save enough to snag your full employer match
Some companies have had to cut back on employer contributions to retirement plans due to the pandemic. This trend is particularly notable among smaller businesses with limited resources. If you're fortunate enough to have access to a generous company match in your 401(k), saving enough to take advantage of it could help make up for a year of paused contributions.
4. Use earnings from a side job to pad your savings
Getting a job wasn't easy in 2020, but as coronavirus vaccines are rolled out and COVID-19 case counts hopefully drop, we could see the job market open up. That means you may have an opportunity to snag a side job whose proceeds can be used to fund your long-term savings.
5. Check up on your investments
The right investment mix can help you strengthen your retirement savings balance. As you work to pump more money into your IRA or 401(k), check how your assets are allocated. Are your investments aggressive enough for your age? If you're a decade or more away from retirement, you'll want your long-term savings heavily invested in stocks, which you can generally expect to generate more growth than bonds. More generous returns in your retirement plan can help make up for a year when you largely skipped contributions. If necessary, move some assets around now, while the stock market is still healthy and strong.
Many people had to ignore their retirement savings in 2020 and focus on immediate expenses instead. If that happened to you, don't feel guilty. Instead, think about how you'll move forward. The right approach to retirement savings could make 2021 the year you do an incredible job of catching up.