You don’t have to go it alone.
It’s difficult to stay motivated to save for retirement on your own. But employers, the federal government and even financial services companies offer programs to help, assuming you take advantage of them. Here’s how to get others to help you build a nest egg for retirement.
It’s easier to save for retirement if the money is withheld from your paycheck before you get a chance to spend it. Set up a payroll deduction to a 401(k) or similar type of retirement account. If your employer doesn’t offer a 401(k), you can set up a direct deposit to an individual retirement account or other type of investment account.
As you get raises, allocate at least a portion to your retirement savings. Some 401(k) plans have an automatic escalation feature that will boost your savings rate without any action required on your part, which forces you to save a little more each year, unless you take action to opt out.
The fastest way to grow your 401(k) balance is to take advantage of employer contributions to your account. Make sure you save enough to get as much as you can. Also, pay attention to your company’s vesting schedule, which determines if you get to keep your employer contributions if you leave the company.
Other types of employer contributions.
Some companies contribute to 401(k) plans of behalf of workers regardless of weather the participant saves, typically on an annual basis. These non-matching contributions are sometimes discretionary and might be based on company profits or a percentage of the participant’s pay.
401(k) tax deduction
Investors can defer paying income tax on up to $18,000 contributed to a 401(k), or $24,000 to age 50 or older. Taxes won’t be due on this money until it is withdrawn from the account.
IRA tax deduction
Workers can contribute up to $5,500 to an individual retirement account in 2016, and employees age 50 and older can make catch-up contributions worth another $1,000. A 50-year-old worker who maxes out his IRA will reduce his tax bill by $1,623.
Roth 401(k)s and Roth IRAs have the same contribution limits as traditional retirement accounts, but contributions are made with after-tax dollars. Withdrawals in retirement, including the earnings, are tax-free.
If you save in a 401(k) or IRA and have an adjusted gross income less than $30,500 for singles, $45,750 for heads of households and $61,000 for married couples in 2016, you are eligible to claim the saver’s credit. The credit is worth 50 percent, 20 percent or 10 percent of your retirement account contributions, up to $2,000 for individuals and $4,000 for couples, with the biggest credits going to people with the lowest incomes.
The equity you have built up in your home can be used to pay for retirement if you downsize and move into a less expensive home or a more affordable area of the county. If you want to stay in your current home for the rest of your life, a reverse mortgage can help you to use some of your home equity for living expenses.
The Social Security system forces you to save 6.2 percent of your earnings for retirement, and then pays it back to you in retirement as a steady stream of monthly payments that are adjusted for inflation. You can boost the monthly amount you will receive by delaying when you sign up and coordinating payments with your spouse.