Rising Costs Making It Difficult to Save for Retirement? 3 Strategies to Try
Key Points
Increasing your income could be an effective strategy if you cannot reduce spending.
Claiming your 401(k) match could help you save more without contributing more of your own money.
Keep a regular savings habit if you can, even if your contributions are small.
- The $23,760 Social Security bonus most retirees completely overlook ›
Rising gas prices have made a lot of people's budgets tighter over the last few months. You may have had to make some tough calls about what you'll spend your money on, and you might have even paused your retirement contributions while you figure out what to do.
Sometimes, temporarily halting retirement savings is your best option if you need every dollar you're earning to pay your bills. But if you have a little wiggle room in your budget or your schedule, one of these three strategies might work better for you.
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1. Consider a side hustle
You've probably already cut back on non-essentials before you decided to stop retirement contributions. So rather than trying to pare your budget down further, focus on increasing your income.
You could take on a side hustle part-time to supplement your savings from your regular job. Put these extra earnings into an IRA for the future. If you use a traditional IRA, the extra income won't affect your taxes at all.
But you might prefer a Roth IRA instead. You'll pay taxes on your contributions this year with one of these accounts, though that doesn't always result in a bill. You may just get a smaller refund when you file your next tax return. After you've paid taxes on your contributions, that money grows tax-free.
2. Claim your 401(k) match, if you qualify for one
If you cannot afford to save a lot, make sure you put your money where it will do you the most good. That's likely your 401(k), if you qualify for a match. If your employer matches 100% of your contributions, up to a certain percentage of your income, you could effectively double your annual retirement contributions without changing your spending.
Talk to your employer or your plan administrator if you're not sure how your 401(k) matching formula works or how much you've already claimed throughout the year. Try to contribute as much as you can, even if you have to leave some of the match on the table.
3. Make small, regular contributions when possible
It might not seem worth it to add $5 or $10 to your retirement accounts each pay period, but it's a smart idea if you can afford it. It keeps the habit of regular contributions alive, and even small sums can add up over time.
If you set aside $20 per month for retirement for 30 years, you'd have roughly $40,000, assuming a 10% average annual return. That's not enough to retire on, but it's also a decent sum. You may be able to cover a year of retirement expenses with that, when coupled with other income sources like Social Security.
Do what you can for now, and then increase your retirement contributions when your finances permit. At that point, you may need to raise your contributions beyond what you'd been saving before, to make up for the period where you had to cut back.
The $23,760 Social Security bonus most retirees completely overlook
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