The personal savings rate in the United States hit 6% in 2018. Relatively speaking that’s not a bad number. Unfortunately, it probably won’t get you to your long-term financial goals.
It may sound obvious, but if you want to have more money when you retire, you are going to have to save more money when you are working.
Fortunately, the annual limits on how much you can contribute to your IRA, 401k and other workplace retirement savings plans are pretty generous. What’s more, they’ve been increased for 2019.
2019 Contribution Limits
Retirement savers who have access to a 401(K), 403(b) and or other qualified retirement plan at work can contribute up to $19,000 this year. That’s up from $18,500 in 2018.
IRAs, including Roth IRAs, have also experienced an increase to their contribution limits: $6,000 for 2019, versus $5,500 last year.
Catch-up contributions remain unchanged for those age 50 or older: $6,000 for 401(k) and other workplace retirement plans; $1,000 for IRAs.
Between the two, a 50-year old individual could contribute up to $25,000 to her 401(k) and another $7,000 to her IRA. If she is married, and her spouse does the same, they could save up to $64,000 for the year for retirement.
Small, incremental steps add up over time
Admittedly, not everyone has the cash flow to max out all their retirement plans. The important thing is to get started and to increase the amount you save over time.
If you are not saving enough, but want to save more, start by increasing your retirement plan contributions at work by $50 each paycheck or upping your 401(k) contribution by two percent or more.
You can do something similar with your IRA. Start with a small monthly contribution drawn directly from your bank account and work up to maxing out your IRA in the future. If you have money on the sidelines to invest, you can make IRA contributions right up until April 15 or when file your tax return – whichever comes first.
Make it a goal to increase your retirement savings to at least 10% of your income; 15% or more would be better. If you have more ambitious goals like retiring early or if you are late to the game, you may need to save even more to reach your goals.
Cross the bridge
Exactly how much you should have saved for retirement will depend on your age, the income sources you will have in retirement, other financial goals you may have, and how much retirement income you will need in the future.
Talk to your financial advisor to see how much you should be saving for retirement, if you are saving enough and to determine the best plan of action to reach your retirement goals.
If you don’t have a financial advisor or are looking for one who can help you cross the bridge to a confident retirement, contact me at 651.379.3935 or email me directly at email@example.com