Are you ready to make a final push toward ramping up your retirement savings for the year? There's still time to bulk up your contribution rate into tax-advantaged retirement accounts, like 401(k)s, or to open up an account if you don't already have one. For extra motivation, you can use a retirement calculator to help crunch the numbers for you. That way, you can generate a savings target for yourself, and work backward to estimate how much to put away (or what percentage of your salary) for each pay period.
Financial advisors generally recommend that people be able to replace at least 80 percent of their income in retirement, and that employees save at least 15 percent of their salary throughout their working lives. (Sometimes people scale back during crunch periods, but workers can also scale up with catch-up contributions, which allow for higher limits on contributions into tax-advantaged accounts after age 50.)
Here are six strategies to employ to make sure your retirement savings are fully funded:
Save a higher percentage of your income all year long. The Employee Benefit Research Institute reports that on average, employees contribute just 7.5 percent of their income to their retirement accounts. But people generally should be aiming to save at least 15 percent of their income, financial advisors say. If you've already contributed less than that for a good chunk of your working life, then it's not too late to make a change -- you'll just have to save a higher percentage to catch up. August is a good time to review your current contribution rate and consider raising it so you can put more money away for the 2014 tax year.
Use the end of the year to bulk up your contributions. You can contribute up to $17,500 to your 401(k) in 2014; for those 50 or older, the limit is $23,000. If you're nowhere close to that amount, consider ramping up your contributions to take advantage of tax-advantaged accounts. For individual retirement accounts, the contribution limit is $5,500 with a $1,000 catch up addition for those age 50 and over. If you want to max out your retirement savings, now is the time to start putting more money away. (You can contribute up to the 2014 limit until April 15, 2015.)
Consider opening an after-tax savings account. If you find yourself hitting up against the savings limit on your tax-shielded retirement account, consider opening an additional after-tax account that's dedicated to your retirement. Just because the law prohibits you from putting more than $17,500 into your 401(k) doesn't mean that's all you should be saving -- it's just all you'll be saving out of pre-tax money.
Use special savings accounts during work breaks. Just because you're not earning a steady paycheck doesn't mean you should put retirement savings on hold. Spousal IRAs for non-working spouses and Roth IRAs can make this easy. Roth IRAs are particularly useful for freelancers, students and other people with unpredictable income streams, because you contribute money to the account after paying taxes on it, which means you can decide how much to contribute after considering your other expenses. If you think your tax rate is lower now than it will be when you take the money out in retirement, you'll benefit.
Don't forget about taxes. According to the Michigan Retirement Research Center, married college graduates -- people who are otherwise among the most prepared for retirement -- often forget to consider just how much of their retirement income will be going to Uncle Sam. Only 3 in 4 people in this group are prepared for retirement after taxes are taken into account; otherwise, 92 percent report being ready. Many online calculators allow users to consider taxes in their retirement calculations.
Lower your fees. Expenses can take a big chunk out of your investment return. But fees vary widely, typically from 0.1 to 2 percent of your total investment on an annual basis. Think tank RAND calculates that even just 1 percentage-point difference in annual fees adds up to $3,380 after 10 years on a $20,000 account balance. But RAND found that when people were presented with various fund options, including one that clearly had the lowest fees, only half selected the lowest-fee fund. One in three people inexplicably selected the fund with the highest fees. (All of the funds exhibited equivalent returns.) Index funds often offer lower fees, which means investors can keep more of their money.
When you're directing a significant chunk of your income into retirement savings, you want to make sure you'll see it again one day.