Aside from hitting the lottery or scoring big on a game show, there are numerous ways to add an extra $50,000 or more to your retirement savings.
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A little bit of frugality, cutting back on impulse buys and routine spending, can go a long way toward that goal.
Most people waste large amounts of money in small, almost unnoticeable increments. The power of compound interest can help multiply these pockets of small change into something more substantial over the years.
"When you wean yourself off the little impulse buys and put those funds back into your retirement account, not only will you lose a few pounds and get off the caffeine — you'll wind up a little more comfortable when you retire as well," says Steve Orr, president and owner of Orr Financial Group in Victoria, Texas.
Orr says he became acutely aware of the power of incremental savings while teaching his children about finance. As part of that lesson, he would encourage them to start investing a portion of their gifts and allowances from an early age.
"Then I watched as the little money they put away each month grew into tens of thousands of dollars in the 1990s," he says.
The growth of that money had him thinking about the spending habits encountered each day.
"You watch folks at the Starbucks or at the convenience store in the morning to get gas and buy a doughnut or two, and you start to wonder what it all adds up to," Orr says. "As I did financial plans for people, I would see what little bits of money could do over a time period because of returns and the compound-interest miracle. I would do a plan for people, just using average returns, and they would be astounded at just how much money they would have by the time they are 80."
The challenge, he says, is making sure they make good on investing the money they trim from expenses.
"It is hard to get them started. Once they get on a roll they do pretty good, though. What I'll do is give them a little spiral notebook that sits in a purse or pocket. I'll tell them to write down any money they spend during the day," he says. "Pretty soon they are starting to reduce their spending, and that's when I say, 'Look, you've reduced your spending anyway, why don't you just go ahead and start investing what you save.'"
The following are relatively painless ways to boost your retirement savings by $50,000 or more by the time you retire.
1. Get off the coffee grind
"The daily specialty coffee from the local coffee stand costs about $3.95, depending on where you live in the U.S.," Orr says. "If you got one every day of the week for about 40 weeks out of the year for the typical 35-year employment span between ages 25 and 60, it would cost you about $27,650 over that 35 years."
Pouring that daily grind into a retirement plan — just on workdays; we'll allow the indulgence on weekends — would push you over the $50,000 goal over the course of 25 years (assuming an average return of 5%).
2. Tuck away $100
Tucking aside an extra $100 a month can do wonders for your retirement plan if you make it a regular habit.
"Starting at age 45, put $100 more per month into your 401(k) plan," says Steve Dimitriou, managing partner of Boston-based Mayflower Advisors. "Earning 8%, you will have nearly $60,000 more in your account at age 65. If you earn $60,000 per year, that is merely a 2% increase in the deferral rate, yet your paycheck will only go down roughly $75, because it is pre-tax. If that is too much, then increase your deferral 1% per year at age 45 and then again at age 48 and, assuming an 8% return, you will have the $50,000 you are looking for at age 65."
Even a less healthy return, should the markets underperform, can still get you close to the mark.
"Save something every paycheck," says Mike Sullivan, vice president of The Estate Planners Group in Washington Crossing, Pa. He adds that saving $50 every two weeks for 20 years, while earning just 5% annually, will accumulate to about $45,000.
3. Pay off high-interest loans
It is not a good idea to head into retirement with a heavy debt load, in particular a mortgage. But even in your accumulation phase, reducing debt and investing those savings can help build a more profitable retirement.
"We had a client who was earning 1.5% on cash in a money market [account] while paying 14% on a contract for a timeshare," Sullivan laments.
He adds that anyone still sitting on the sidelines should refinance their home to a lower interest rate and invest the difference. The extra money in your savings will grow exponentially.
4. Snip your credit cards
Curtis DeYoung, president of American Pension Services in Riverton, Utah, offers an unconventional — and somewhat controversial — idea for paying down credit card debt, parlaying a short-term hit to your 401(k) into more sustained future savings.
"If you had a credit card debt of $50,000 at 18%, your minimum monthly payment would be $1,250, accumulating $74,430 in interest and take 41.8 years to pay," he says. "If you borrowed $50,000 from your 401(k) and paid the debt now at a 4.25% rate, your payment would be $926.48, saving you $323.52 every month. You would pay your 401(k) $5,588.67 interest, saving almost $70,000 and pay the debt in five years. Wall Street may discourage this, but why wouldn't you do that?"
Whether or not you take that advice, there is no denying all that money wasted on interest payments would be better served improving your retirement plan's health.
5. Buy a cheaper car
Car loans in the United States last year averaged $27,888, according to the Federal Reserve's most recent report on consumer credit.
If you were to scale back just one car purchase during the span of your working days, cutting a typical loan in half by buying either a less expensive car or a used one, the savings would likely push you past the $50,000 goal for added savings.
Over 25 years, if you were to plunk down that $13,944 you saved on your wheels in one lump sum, it would take a 6% annual return to reach $60,000 in savings within 25 years. That doesn't even factor in the interest payments you will be spared, and the result is the same even if you had hard cash to spend on your new wheels.
For the many who don't have that much liquid cash ready to shift into savings, making regular "phantom" car payments representing what you saved into your retirement accounts could be the trick needed to save more.
6. Take full advantage of benefits
"Fully fund your 401(k)," says Ron Weiner, CFP, president and CEO of RDM Financial Group in Westport, Conn. "People don't do this because they think they need every dime of their paycheck. But look for savings elsewhere and fully fund — take the tax deferral now."
"Take full advantage of employer matching contributions," adds Chris Abts, president of Cornerstone Retirement Group in Reno, Nev. Doing so will not just take full advantage of the benefit being offered; it will set you on a path for measurably larger savings when you do retire.
"Most employers match some level of contribution to a company 401(k) or retirement plan," Orr says. "It is usually around 50 cents on the dollar up to 6% of your salary. So if you're making around $35,000 a year and you aren't currently contributing to your plan, you could be losing out on about $465,000 at the minimum, assuming you never get a raise and stay at $35,000 a year for 35 straight years."
7. Use the catch-up provision
If the desire to improve your retirement plan comes later in life, you are not out of luck.
Folks over the age of 50 can take advantage of a catch-up provision the IRS allows. In addition to this year's contribution cap of $16,500, they can also arrange to have up to an additional $5,500 added to their account via savings or deferrals.
With 10 to 20 years of work still ahead for most, these additional savings will increase your retirement plan by the sought-after $50,000 long before it is time to start drawing down the assets.
See the full list of 10 Ways to Boost Your Retirement by $50K.