In addition, the emotional relief that comes with paying off debt is an investment in yourself and your well-being.
Next Steps: Smart Money Moves for Retirement
With your high-interest debt reviewed, you can look for other ways to potentially increase your retirement savings. Here are some tactics to consider.
1. Take advantage of money on the table
Start looking for additional money to funnel into your retirement funds. Does your workplace match retirement contributions up to a certain amount? And, if so, are you meeting at least the minimum for that match? If not, try to boost your monthly contributions to capitalize on this benefit. Otherwise, you’re leaving money for retirement on the table every month.
2. Make your HSA a retirement vehicle
Similarly, does your employer offer a Health Savings Account (HSA) program with annual contributions? An HSA can be used for your medical expenses today, but it can also be used as a retirement account in the future. Contributions you make to your HSA are tax-deductible and can gain tax-deferred earnings. While you can withdraw, tax-free, from the account for medical expenses now, once you turn 65, you can use the remaining funds as retirement income.
3. Consider an appropriate IRA
Depending on where you are in your career trajectory, investing in different IRAs can provide different benefits. Much of your evaluation may depend on whether you think your tax bracket will be higher or lower after you retire. If you’re in your 40s in a lower income bracket, and you anticipate your tax rate will go up, a Roth IRA might be the right choice. If you’re expecting to be at a lower tax rate when you withdraw from your IRA, a traditional IRA might be the better fit.
Another consideration for both Roth and traditional IRAs is that you can also make an additional catch-up contribution ($1,000 as of 2021) annually once you’re 50 or older.
4. Set automatic investments and increases
Using automatic investments and increases can be a great tool for your retirement contributions. Automatic investments can help you eliminate the guesswork of when to make new purchases. And automatic annual increases (even just 1% to 2%) in payroll deductions to your employer’s retirement plan can be so incremental that you may not notice it on your paycheck. But at the same time, you’re setting more aside for retirement.