When you picture your ideal retirement, you probably aren’t picturing having to work. But, according to a recent survey from the Pew Research Center, that’s the reality for many. In fact, almost 1 in 5 Americans ages 65 and older (19%) were employed in 2023.
There are many reasons why this could be the case, from not saving enough to thinking you can get by on a smaller budget than turns out to be possible for one reason or another. Still, there are steps you can take to minimize your chances of having to work in retirement:
Start saving ASAP
There’s a reason finance people are always singing the praises of compound interest: It works. So if you haven’t started saving for retirement yet, this is your sign to start ASAP.
After all, the longer you can invest your money for retirement, the more of a chance it has to grow. And that’s true even if you can’t afford to put much away right now. The dollars you can put aside today are more valuable than the ones you put away closer to retirement.
Let’s say you start saving for retirement at age 25. If you saved $1,800 a year (or $150 per month) in a 401(k) and it earned a 7% annual return, you’d have just over $359,000 by the time you turned 65. That’s assuming you never upped your contributions.
But if you waited until you turned 35 and contributed $300 a month (double the previous contribution), you’d have about $340,000 when you turned 65, based on the same annual return. The earlier you start, the easier it’ll be to reach your retirement savings goal.
The easiest way to start saving is to contact your employer about setting up 401(k) contributions. Once it’s set up, that money will automatically come out of your paychecks.
Capture any employer match
Aside from saving for retirement as early as possible, the best thing you can do to boost your retirement savings is to make sure you’re contributing enough each month to at least capture any employer match that you have available to you.
So, for example, if your employer matches contributions up to 3% of your annual salary, and you earn $50,000 a year, that’s $1,500 per year in completely free retirement contributions. Even if you only got that match for one year, that amount could be worth just over $22,000 when saved over a 40-year period, assuming a 7% annual return.
You’ll need to contact your retirement plan provider to adjust your contribution amount. And, if you stay at that job for multiple years, you should also revisit the contribution amount each year. This way, you can further boost your retirement savings.
Open and invest in a Roth IRA
There’s no question that investing money in a retirement fund is a long game, but there is one aspect that you should consider and guard against: taxes. The more those eat into your funds in retirement, the less you have to live on and the more likely you are to have to go back to work to supplement your income. But you can use a Roth IRA (individual retirement account) to minimize this risk.
Unlike a 401(k) or a traditional IRA, a Roth IRA doesn’t reduce your taxable income now. Instead, you’d be able to withdraw funds, tax-free, during retirement. So it can help reduce your tax burden in retirement, especially if you end up being a higher tax bracket in retirement.
Just keep in mind that your IRA contribution caps include both Roth and traditional IRA contributions. As of 2024, those are capped at $7,000 (or $8,000 if you’re age 50 or older).
To open a Roth IRA, you’ll need to choose a provider and then apply for an account. Once that’s set up, you can create a recurring contribution (or, if preferred, you can contribute a larger amount on a less frequent basis, such as quarterly or annually). Once funded, be sure to invest that money to grow it for the future.
Saving enough for retirement can be tough, and it requires dedication and consistency. But if you’re able to set aside even a small amount early in your working life and guard against a large tax bill in retirement via a Roth IRA, you’ll be well on your way to a healthy retirement savings balance.
