Even a 1% increase in your 401(k) contribution rate can make a meaningful difference by the time you retire. If you cannot afford to increase your contributions right now, certain life and financial events may give you an opportunity to boost your retirement savings without reducing your current income.
Note: We always recommend consulting with a financial advisor or tax professional to assess your objectives before making investment-related decisions.
The following life and financial events may give you a good opportunity to boost your retirement savings.
Consider increasing your retirement contributions at the beginning of each year. You can start by raising your rate by just 1%, then evaluate increasing it annually as your career progresses and your budget allows.
Increasing your contribution rate at the start of the year may also help you maximize any matching contribution you are eligible for. If January does not work for you, pick your preferred time and make it an annual habit.
Paying off high-interest debt — like credit card bills and personal loans — is a major accomplishment. Freeing up that extra cash gives you more room in your budget. Consider redirecting the amount you were putting toward bill payments into your retirement savings instead.
As a general rule, you may want a savings safety net of three to six months’ worth of living expenses. Once you meet this short-term goal, it could be a good time to start saving for longer-term needs like retirement. Consider speaking with a financial professional to help determine what works for your situation.
Whether you got a raise, earned a promotion, or moved to a higher-paying job, consider increasing your retirement contributions before the extra income hits your bank account. This can help you avoid “lifestyle creep,” where monthly expenses grow alongside your earnings. You may not miss what you do not see.
After your 50th birthday, you may be eligible to make catch-up contributions. These go above the typical annual contribution limit set by the IRS, allowing those nearing retirement age to catch up on their savings. Learn more about catch-up contribution limits.
You can change your contribution rate at any time from the Contributions page in your Gusto Retirement dashboard.
This information is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal, or financial advice that considers all relevant facts and circumstances. Investing involves risk and investments may lose value. Tax laws and regulations are complex and subject to change. Consult a qualified financial adviser or tax professional before relying on this information.