Smart Ways to Get Your Retirement Back on Track Even If You Let Contributions Slip

Uncertainty continues to shroud the economic outlook for 2024 as recession fears and a bearish stock market continues to weigh heavily on investors. Amid the current volatility, however, it is essential not to lose sight of long-term goals.

Financial goals vary greatly from person to person. While some work to pay off college debt, others aim for home ownership. Yet, regardless of individual circumstances, there is one thing almost everyone must invariably prepare for – retirement. 

The current inflationary environment is causing considerable uncertainty around retirement. A study done in September last year found almost three-quarters of Americans said the rising cost of living was causing them to change their retirement plans in one way or another. One in five people aged between 55 and 64 said they had delayed their timeline for retirement in response. 

In truth, many Americans are woefully underprepared for their post-paycheck future. According to Federal Reserve data, the average American has less than $207,000 saved for their post-work life by the time they reach retirement age (65 to 69). That is a relatively small sum, especially considering the median income for workers in their late sixties is about $52,000 a year. 

Despite the doom and gloom about the current state of the economy, 2024 doesn’t have to bring a financial setback. With some careful foreplanning and financial discipline, you can get your funds in order. Consider how you could take action on the following retirement savings strategies, and you can make progress in the right direction toward a sustainable and secure retirement. 

401(k) All the Way

For many American workers, 401(k) contributions make up the financial foundation of retirement.

401(k) plans are employer-sponsored retirement plans that allow employees to contribute a portion of their salary on a tax-deferred basis. 

A 401(k) provides an ideal vehicle to ‘set and forget’ retirement savings and allow your nest egg to compound with interest over time. Many workers find it easier to have a portion of their salary automatically sent into a retirement account rather than having to consciously save it themselves.

In addition, many employers offer to match whatever amount their employees contribute to the plan. Depending on the plan’s details, this can potentially double the sum going into your account each month. Taking advantage of this ‘free money’ is an excellent way to boost your retirement savings and get a return on your contributions.

To get the most benefit, employees should review their company-sponsored 401(k) guidelines to ensure they are maximizing contributions and company match. 

For job hunters, it’s crucial to ask for details on a prospective employer’s contribution and calculate how much that will add to your retirement fund over the years to come when weighing up which company to work for.

The best strategy is to not only max out your 401(k) contribution limit but also to find an employer that offers dollar-for-dollar matching contributions in addition to non-matching contributions. This way, you can get the company as close to maximizing the employer’s total allowable contribution as possible. 

That Extra Something 

Beyond the 401(k) plan, consider additional retirement contributions using Roth IRA contributions to grow your retirement nest egg further. 

With a Roth IRA, your contributions can only be made with after-tax dollars. However, any earnings on your contributions grow tax-free, so you don’t have to pay taxes on them when you withdraw them in retirement. 

Another benefit is their limitless lifespan. Unlike traditional IRAs, Roth IRAs don’t require you to take required minimum distributions (RMDs) from age 72. In other words, you can leave your money to keep growing in the account for as long as you want.

There are some restrictions on Roth IRAs, with the main obstacle being income level. Direct contributions are not possible for those over a certain income level. However, high earners can still use the backdoor IRA conversion (or “mega backdoor Roth IRA conversion”) methods to leverage this low-tax vehicle.

Slow and Steady 

Long-term passive-style investing is another ideal retirement strategy. Typically this is done through low-cost index funds – the kinds of exchange-traded funds (ETFs) offered by Blackrock, Vanguard, and other prominent investment firms. 

There are other options, too, such as bonds, mutual funds, or other securities. The most suitable long-term asset type is that which best matches the risk profile of the individual investor. The key is to start saving as early as possible and consistently set aside money over time.

The market is currently still down from its all-time highs at the end of 2021. Yet times like these, when sentiment is low and fears of recession widespread, have historically been a good time to invest in equities. Using dollar-cost averaging and other tactics to invest consistently during a market decline typically pays off over the long run. However, as is often cited when discussing investment returns – past performance is no guarantee of future results. 

Passive investing may seem like an additional extra, but it should not be overlooked. Since not all employers offer 401(k) plans, some workers have no choice but to save and invest independently.

Even for those who do have formal retirement vehicles set up through their employer, having additional investments is certainly beneficial over the long run and gives you more asset options to draw upon in retirement. 

Investors may invest through their bank or brokerage or place their equities in a tax-deferred retirement plan, an optimal vehicle for passive investing.

The past few years have seen several economic shocks, and 2024 could be just as unstabilizing. With the vast majority of CEOs expecting a recession to hit this year, businesses are getting ready for a tough few months ahead. 

Yet the current downturn doesn’t mean financial setbacks for all. If anything, the worsening macroeconomic climate should spur us to practice greater frugality and financial discipline, which can safeguard us from ruin. By following these simple methods and consistently putting in the effort to save and invest, you can move closer to your retirement goals this year.