For most working Americans, retirement is a matter of survival rather than enjoyment. The average household has just $87,000 saved for retirement, according to research by The Motley Fool. A glance at living costs, including rent, cars, and grocery prices, indicates that most people have some work to do to get that nest egg up.
But you don't have to get by barely. You can thrive. If you have working years left, you still have time to leverage some retirement hacks that could make you rich... or, at the very least, position you to live out your golden years comfortably.
Take advantage of these five hacks. Your future self will thank you.
1. Pay yourself first
This technique is so simple, yet so overlooked. What do you do when you get paid? Immediately start subtracting rent, groceries, and that $50 you owe your buddy for pizza and beer. Then, impulses kick in. It's dinner on Tuesday with the girls, or that new game you've been waiting for came out. Hey, we're all human, right? Before you know it, you're broke and waiting for the next check.
Try reversing that process. Set up automatic contributions to your investments and savings so that you've already taken care of your future you before all of your money disappears. Out of sight, out of mind.
2. Take that free 401(k) money
Many U.S. employers offer sponsored retirement savings plans -- the 401(k) is the most common. It's a pre-tax investment account, meaning you contribute to it from your gross pay, and the taxes are deferred until after you've retired. The key here is that your 401(k) money is invested and grows during your working years. Be sure to know the rules of your 401(k).
Some companies offer a company match to encourage employees to invest through their 401(k). These are separate contributions from the company that match your own, usually on a dollar-for-dollar or $0.50-per-dollar basis, up to a certain percentage of your salary. For example, a one-for-one match of up to 5% on a $100,000 salary would mean your employer will kick in up to $5,000 more toward your retirement, assuming you contribute that much. You must contribute to earn the match, so invest enough in your 401(k) to at least get your maximum match -- it's free money.
3. Fund an IRA
When it comes to your retirement savings needs, you might want more flexibility than a 401(k) will allow. In that case, consider an individual retirement account (IRA). An IRA offers you more ways to invest. For example, you can buy and hold individual stocks in an IRA, which most 401(k) plans don't allow.
There are more than one type of IRA, including Roth IRA and SEP IRAs, so make sure you understand the differences between them and pick the best plan for you. Don't hesitate to consult a professional advisor to help you make these choices. These accounts can help you grow your nest egg and potentially save you big on taxes.
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4. Don't overlook the HSA if you're eligible
The health savings account (HSA) is one of the most underestimated retirement hacks. It's another tax-advantaged investment account that's loaded with benefits. These accounts are designed to help people save for medical expenses if they have a high-deductible health insurance plan. If used to cover medical costs, the money you put into an HSA is both tax-deductible in the year it's contributed and withdrawn tax-free.
You can face penalties if the money is used for non-medical reasons, so don't skirt the rules. However, any money withdrawn from an HSA after you turn 65 can be used for anything and you won't incur penalties. You'll simply pay income taxes on the funds.
5. Aim for 15%
One of the most frequent questions people ask is: How much should I be saving? A lot goes into answering that question, but aiming for 15% of your income each year is a great goal. Yes, that can feel like a huge stretch. To be fair, it is. That's why hack No. 1 -- paying yourself first -- helps. If you follow that guideline, you can build your lifestyle and budget around proactively saving your money.
Perhaps you're already saving 8% of your income. Great! The next time you get a raise at work, use it to bump up your savings rate before you start applying it to your lifestyle. That may prevent you from upgrading to the heated leather seats in your next vehicle, but you'll be building a rock-solid financial foundation that you'll be glad you have long after that vehicle has come and gone.
