This year has been financially tumultuous for millions of Americans amid inflation, market volatility and borrowers preparing to resume repaying student loans in October. In a new study from Allianz Life Insurance Company, the recent financial crises have been so difficult that 46% of those surveyed said they reduced or stopped saving for retirement, and there isn’t an expectation to increase their savings levels in the foreseeable future.
If you stopped saving for retirement, what would you need to do to start saving again? Follow these steps to get your retirement savings back on track if money woes have reduced your saving efforts.
Know How Much To Save
Those who took a break from saving for retirement likely want to know how much they should be saving each month.
While there isn’t a one-size-fits-all approach, Tom Armstrong, VP, customer analytics and insight at Voya Financial, said individuals should save enough to generate at least 70% of their pre-retirement income in retirement.
“We typically find participants who are on track to achieve a secure retirement — as defined by on target to meet that 70% of income replacement — are usually saving at least 10% to 15% of their salary,” Armstrong said.
Make a Budget
Budgeting is key for all financial decisions, whether you plan to start paying for a new bill every month or want to save more of your paycheck.
For those who want to get back to saving for retirement, Armstrong recommends setting up a budget that follows the 50/30/20 rule. This means putting 50% of take-home pay toward needs like housing, food, transportation and any debt payments. Put 30% toward wants, like dining out and entertainment, and put the final 20% toward savings, such as an emergency fund and your retirement account.
Revisit Your Investment Vehicles
If you paused or cut back on saving in your investment vehicles, it’s time to review the ways you can start maxing them out again. Aviva Pinto, CDFA and managing director at Wealthspire, recommends taking the following actions on your 401(k) and IRA and/or Roth IRA accounts.
IRAs and Roth IRAs
Try to contribute as much as you are able within the current limits on these accounts. In 2023, Pinto said this amount is $6,500. Those age 50 or older may also contribute an additional $1,000 to their IRA or Roth IRA.
Did you cut back your contribution percentage to the company 401(k) plan? Pinto recommends contacting the HR department to increase the percentage that comes out of your paycheck during each pay period.
“You can start small and increase the percentage over time,” Pinto said.
The maximum contribution limit in 2023 is $22,500. Those over 50 can contribute an additional $6,000 for a total of $28,500.
Ask Your Employer About Other Financial Resources
Aside from contacting HR to increase your 401(k) percentage match, Armstrong said you can see whether your employer offers additional financial resources worth leveraging as you get back to saving for retirement.
Other available resources may include health savings accounts (HSAs), tools for building emergency savings and support for student loan debt.
Armstrong said, “Many individuals don’t recognize how many great resources are available to them — and many without cost — directly from their employer.”
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