You can still make up for lost time.
The new year is a time of looking forward, but we also wind up looking back at all we accomplished last year — and all we didn’t accomplish.
If you fell short on your plans to beef up your retirement account in 2023, it’s OK. You’re definitely not alone. And for most people, there’s still time to get things back on track.
These five steps can help you get off to a strong start in 2024. Try to make some time for them in January so you know exactly what you need to do for the rest of the year.
1. Figure out how much you need to save
It’s tough to get where you’re going if you don’t know where you’re at, so step one is figuring out what you already have and what you need. Record the balances of all your retirement accounts. This includes 401(k)s, IRAs, and health savings accounts (HSAs) if you use these for long-term savings. Don’t forget about retirement accounts from past employers or self-employed retirement accounts, if applicable.
Next, figure out how much you need to retire comfortably. This depends on your lifestyle, current age, life expectancy, and desired retirement age. It’s best to be optimistic when estimating your life expectancy, so you’ll still have cash to cover your bills if you live for a long time.
Once you’ve landed on a retirement savings estimate, subtract your current savings from this amount. It’s OK if you still have a lot to go. All that money doesn’t have to come out of your own pocket. You’ll probably qualify for Social Security and maybe a pension in retirement, and you’ll have investment earnings too.
2. Don’t leave free money on the table
Those who qualify for a 401(k) match should make claiming this their top priority in 2024, unless they truly cannot afford to defer any money from their paychecks. These matches could potentially put thousands of dollars in your retirement account each year, and your employer won’t give you that money some other way if you fail to claim it.
Talk to your HR department if you’re unsure how your company match works. Usually, your employer gives you $1 or $0.50 for every dollar you put into the account, up to a certain percentage of your income. Aim to contribute at least this much if you can in 2024.
3. Save your windfalls
You may have gotten a bonus from your job at the end of 2023 or holiday money from family and friends. Many people also have a tax refund coming their way in the next few months. If you don’t have an immediate use for this money, consider stashing it in a retirement account where it can grow for your future.
401(k)s don’t allow large, one-time deposits like this, so you’ll either have to use your windfalls to cover your daily expenses and increase your 401(k) paycheck deferrals or open an IRA. If you choose the IRA route, you’ll be able to decide how you want to invest your money and when to pay taxes on it.
4. Avoid paying too much in fees
It’s not possible to avoid fees when investing, but you can take steps to reduce them. Mutual funds and exchange-traded funds (ETFs) charge expense ratios, which are an annual fee you pay the fund manager. They’re a percentage of your assets. For example, a 1% fee would cost you $1 per year if you had $100 invested in the fund.
Keep your expense ratios at or under this amount whenever possible. You can find out how much you’re paying by checking your prospectus.
Consider switching to index funds if you’re paying more than you want to right now. This is an easy move to make if you’re saving in an IRA, but 401(k)s only enable you to invest in funds your employer selects, so it may not be an option here.
5. Delay retirement
Though it’s not ideal, delaying retirement can be a good move if you aren’t able to save enough by your chosen retirement date. It gives you additional time to set aside cash while also reducing the length and cost of your retirement. And it allows your existing investments to grow for longer.
Do your best when it comes to retirement savings in 2024, and even if you aren’t able to save as much as you’d like, every dollar still helps. It’s better to be flexible and adapt your retirement strategy as you go than it is to rigidly adhere to your plan. Review your retirement plan each year and look for new opportunities to grow your nest egg as much as possible.
