By Michael Schoonmaker - July 16, 2018
Retirement is such an important savings goal. We all know it, but not many of us do it—or do it well. Let's change that with some retirement life hacks that may give you a better chance of living the future you want.
Life is full of flip sides, and retirement is no different. You can gain freedom from the daily grind, long hours or lengthy commutes. But you may also leave behind the steady paycheck, the health insurance safety net and other benefits that can make you feel secure.
The life hacks I'll explore today may help address both what excites and concerns you about the future. And, they can be practiced with the original seven retirement hacks I covered a year ago. Pay particular attention to the last two if you are nearing age 50.
In my previous retirement hacks list, I encouraged automatic escalation, which is increasing your savings by a percentage or two every year. Now I'm talking about putting salary increases to work for retirement.
A large majority of people increase their monthly expenses when they get a raise. More income means more money to spend, right? I encourage you to take a different path and put your future first. Consider keeping expenses static and adding at least part of the extra into your retirement savings with each paycheck.
A close cousin to saving more with a salary increase is to invest when you receive a larger sum of money. Bonuses, tax refunds, settlements and inheritances may exponentially increase your savings in the long run. See how a lump sum investment of $10,000 in 25 years compares to investing $10,000 divided into equal amounts over the same period.
Source: Time Value Calculator, Financial Calculators from Dinkytown.net, 2018.
The hypothetical example compares a one-time investment of $10,000 held for 25 years to 25 equal annual investments that total $10,000. The results assume a 6% interest rate. This hypothetical situation contains assumptions that are intended for illustrative purposes only and are not representative of the performance of any security. There is no assurance similar results can be achieved, and this information should not be relied upon as a specific recommendation to buy or sell securities.
Concerns about medical expenses in retirement can sap the confidence of even the strongest saver. If you have a health savings account, you can make it work double duty for today's medical expenses and retirement. But you must treat it like a retirement investment and save more than you withdraw.
No other retirement account carries the same triple tax benefits as an HSA:
Plus, these tax breaks extend into retirement. When you turn age 65, you can use the funds for any retirement expense.
Before you get close enough to retirement to think about Social Security, find out how and when you should claim your benefits. Though you can start claiming at age 62, you'll want to consider when it's best for you and your family.
Claiming too early can reduce your benefit by up to 30 percent, while waiting until age 70 can increase the benefit up to 132 percent. I suggest doing your homework.
Source: Social Security Administration (ssa.gov ) as of May 2018.
In many retirement accounts, you can contribute more than the maximum limit if you're 50 and older with "catch-up contributions." This extra savings can give you a boost for retirement, especially if you contribute the catch-up amount—usually $1,000—every year until you retire.
There will be a temptation for some who read this article to feel like it's too late to save. It's not! Many people regret how they have saved in the past, and in fact have named it as their biggest personal regret*. But don't let that stop you from starting now or saving more. Today's the best day to begin.
The best approach to retirement savings is to have a plan. Our retirement tools may help put you on a track to save. If you're already saving, they can also help you gauge you're saving enough.
Need to know more about social security? Here are answers to five common questions about filing for social security benefits.
Now that some major retirement rules have changed, how does your own plan hold up? Here's what to look for.
How should you save for retirement in your 40s and 50s? Learn tips and strategic moves like paying down high-interest debts.
The health of your finances and relationship as a couple may depend on regular money talks. Find out how to curb money disagreements together.
Estate planning isn't just for wealthy "fifty-somethings." If something happens to you, having a plan can make it easier for those you love.
How much should you have saved for retirement by any given age? We’ve got smart retirement tips, goals and checkpoints for any age and income level.
* Source: American Century Investments® 6th Annual Survey of Retirement Savers, 2018
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.