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How to Max Out Your Retirement Plan Contributions

Jeff Rose

One of the best things you can do for your retirement is to max out your retirement plan contributions. Two of the factors that can have a big impact on how much money you end up with during retirement are when you start saving (it's best to start as early as you can), and how much you actually contribute.

For most of us, contributing $100 a month just isn't going to cut it in retirement. Instead, consider maxing out your retirement plan contributions. At the very least, try to max out an IRA each year. Here are some strategies you can employ to help you max out the contributions you make to at least one of your retirement plans:

Take advantage of the employer match. If you have an employer match, you should be taking advantage of it. Find out what you need to contribute in order to receive the maximum matching contribution, and then add that money to your account each month. If your employer is offering a match, that is free money that you can use to boost your retirement account contributions. Remember, the more you put in now, the better compound interest can work on your behalf to build wealth for later.

Slowly increase your contributions. Gradually increase your retirement account contributions. You don't have to suddenly go from contributing $100 a month to contributing $500 or $1,000 a month. Instead, step up your contributions slowly. Look for an extra amount of money to regularly apply to your retirement contributions.

If you think that you can find $50 more a month to save for retirement, add that to your contributions. This should be a regular contribution that permanently raises the amount of your deposits. After a few months, when you are comfortable, look for another $50 or $100 a month that you can contribute to your retirement account. Step up your contributions regularly until you reach your goal of maxing out your retirement account each month.

Add windfalls to your retirement account. If you receive an unexpected windfall, add it to your retirement account. Whether this is a one-time bonus, lottery winnings, or a raise, consider adding money to your retirement account. This will help you move toward maxing out your retirement account--at least this year.

If you end up with a raise, immediately appropriate a good portion of that raise to your retirement account contributions. Do this as quickly as possible in order to avoid the problems that can come with lifestyle inflation. Instead of getting used to spending more on things you don't actually need, spend part of it on shoring up your retirement nest egg.

You don't need to put the whole of a raise or a windfall toward your retirement plan contribution amount, but you should put some of it toward that goal. This is extra money that can help you hit your retirement contribution target for the year, and help you ensure that your retirement is successful.

Start now. Do what you can right now to start increasing your retirement plan contributions. Even if you don't feel as though you can increase your contributions by a huge amount, just adding a little more to your retirement account on a consistent basis can be a huge help in the end.

If you are conscientious about increasing your retirement account contributions, and make it a goal to eventually max out one of your retirement plans, you will be able to watch your nest egg grow. You will also have fewer worries about how you will pay for your retirement years.

Jeff Rose runs GoodFinanialCents.com, a successful financial planning blog. He encourages all young families to take charge of their financial life by opening a Roth IRA and buying affordable life insurance.



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