3 Smart Ways to Find More Money to Save for Retirement

If your retirement accounts aren’t quite where they should be, here are some ways to fix the problem.

The majority of Americans aren’t on track for a comfortable retirement. According to Vanguard data, the average 401(k) has about $112,500 in it, which is just a small fraction of the amount needed to generate a sustainable income throughout a long retirement.

If your retirement accounts aren’t quite where they should be, it could be a smart move to increase your contribution rates as soon as you can. You might be surprised to learn that you are allowed to contribute as much as $23,000 per year to your 401(k) or similar retirement plan, or $7,000 to an IRA, and these limits are even higher for individuals 50 and older. Many financial planners — including myself — suggest a retirement savings rate of about 10% of your pre-tax income, not inclusive of any employer matching contributions. And if you need to catch up, your ideal contribution rate could be even higher.

Of course, simply increasing your retirement contributions can be easier said than done. If you’re struggling to find extra money to add to your retirement account, here are three suggestions.

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Control your cash outflow

If you’re struggling to find room in your budget to save more for retirement, one smart strategy is to see where you might be able to cut back and reallocate some money to your savings.

An exercise I often suggest (and one that I do periodically) is to print out the last few months of your bank and credit card statements. Go through each one and highlight any expense that wasn’t necessary. This can be things like meals at restaurants, recurring membership fees you don’t need, or spending too much on groceries.

The point isn’t to say that you can’t spend any extra money, but you might be surprised at how much of your cash outflow you may be able to trim. In my case, the first time I did this, I hadn’t realized how much my wife and I had been spending in restaurants, and then we took steps to cut back. I also didn’t realize how high our monthly auto insurance payment had become (it was simply auto-debited every month for several years), and shopping around made a big difference.

Use your tax refund

According to the latest data, the average tax refund Americans are receiving in 2024 is $3,145. That’s about 6% more than the average at the same point of last year’s tax season.

If you recently received a tax refund, or anticipate receiving one in the near future, it could be a great way to find extra money to add to your retirement account.

Consider this. Let’s say that you’re 35 years old and that you received the average $3,145 refund. By contributing that money to a tax-advantaged retirement account like a 401(k) or traditional IRA, not only would you be setting yourself up for an even higher tax refund next year (your contribution may be deductible), but you might be surprised at the long-term effect it could have. Based on the stock market’s historical rate of return, which is about 10% on average per year, a $3,145 tax refund could grow to nearly $55,000 by the time you’re 65.

Gradually increase your 401(k) contributions

I mentioned earlier that a good target retirement savings rate is 10%. But if that seems like too much, you might consider a gradual increase strategy. Just to name a couple:

  • Increase your contribution rate by 1% of your pay each year until you get to the desired percentage. If you contributed 5% last year, increase it to 6% this year, 7% next year, and so on.
  • Increase your retirement contribution rate whenever you get a pay raise. That way, you won’t even really notice the sting. After all, if you get a 3% raise and increase your retirement contribution rate by 2%, your paychecks will still go up and you’ll make a big difference in your long-term financial situation.

The bottom line

Finding extra money to save for retirement can be difficult, but it’s easy in comparison to reaching retirement age without enough saved. By taking steps like these to boost your retirement savings today, you can put yourself in a much better position for a financially secure retirement.

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