The median retirement savings for American households has increased over the years, reaching $87,000 in 2022. However, that's still nowhere near the $1.46 million that Americans believe they need to retire comfortably, according to a Northwestern Mutual survey.
If you want to beef up your retirement savings, there's one move you can make now that your future self will thank you for.
Image source: Getty Images.
Maximize IRA contributions
If you have a job, you're likely already contributing to an employer-sponsored retirement plan, such as a 401(k). But if you meet certain income requirements, you can also stash away up to $7,000 in a Roth IRA if you're under 50, and up to $8,000 if you're older, in 2024. Since individual retirement accounts (IRA) aren't tied to your employer, you'll have full control over the account and can invest in assets like exchange-traded funds and individual stocks to supercharge your investment portfolio.
Let's say you are 25 years old and you contribute $7,000 to a Roth IRA every year. You could have a nest egg of over $2 million by the time you're 60, assuming your portfolio earns an average of 10% each year. If your annual contributions rise with inflation and you take advantage of catch-up contributions after you turn 50, you could reach your goals sooner.
If a Roth IRA isn't your cup of tea, you can max out contributions to a traditional IRA, but you'll need to get up to speed on the tax rules. However, whichever account you choose, here are a few tips to help you crush your IRA goals:
- Increase your income
- Decrease your expenses
- Stick to a budget
- Determine the best contribution frequency
- Set up recurring IRA contributions
- Add financial windfalls to your account
The secret to maximizing your IRA contributions is to develop a strategy, be consistent, and remain disciplined. The more money you save and invest in an IRA now, the more you'll have saved up to live the retirement of your dreams.
