04.18.22

Finding an extra $1,000 to save for retirement

Put away a little extra starting now, and you could really see it add up.

Even with a retirement-savings plan in place, saving more is always a good goal to work toward.This year, the IRS has announced an increase in the amount of pre-tax dollars you can contribute to a 401(k) or 403(b)—to $20,500, up from $19,500, where it’s been for the past two years. (Note that for those age 50 or older, catch-up contributions are also permitted; in 2022, this allows for an additional $6,500 in annual contributions to these same types of plans.) This is a no-brainer opportunity for savers, but when you’re already contributing a sizable amount of money each year, coming up with even an additional $1,000 can sometimes feel easier said than done.

There will always be other expenses, but this is about paying yourself first, says Daniel Ruppel, a Financial Planning Strategist at TIAA. “Try leading with your savings,” he says. “Increase the amount that you save, and see what impact it has on your lifestyle.” It may not make as big a dent as you think.

Here are a few easy-to-implement ways to take advantage of the new contribution limit for 2022:

1. Increase your payroll contribution. 

One of the easiest (and least noticeable) ways to save an additional $1,000 for retirement is to up the pre-tax contribution directly from your paycheck to your 401(k) or 403(b). As Shelly Eweka, Senior Director, Financial Planning Strategy at TIAA, points out, this amounts to around $40 per paycheck. “You’re not likely to miss this, but if you do, you can always back it down to $25 a paycheck,” she says.

2. Repurpose your spending.

Saving money doesn’t mean sacrificing something you enjoy, especially if you come up with a creative alternative. For example, if you and your spouse have a standing date to go out to dinner once a week, opt to cook one dinner a month together at home, and put the money you would have spent at a restaurant in a jar (figuratively—or even literally). Make it a point to experiment with less familiar cuisines, or try to master your favorite restaurant dishes; you might be surprised at what you save, even when you splurge on high quality ingredients, when you’re not paying for service.

3. Siphon savings off of your bigger expenses.

Shopping around for lower rates on auto and homeowner’s insurance or refinancing your mortgage can be annoying, but putting in the time can lead to significant savings, says Ruppel. “This is especially true if it’s been some time since you last re-evaluated those things,” he says. You may not even need to switch providers—a good first step may be calling your current providers and asking how you can pay less.

Also think about the ripple effects of your decisions, says Ruppel. For example, choosing to hold off on buying a new car not only saves you a monthly payment but can help avoid cost increases, for things like insurance, which can cut into savings opportunities.

An extra $1,000 per month adds up
An extra 1000 an year

(Assuming 5% growth rate)

Source: TIAA1

1The above illustration is intended to show a hypothetical example of the principle of compounding. The example does not include the impact of any investment fees, expenses or taxes that would be associated with an actual investment. If such costs had been taken into account, the results shown would have been different. It also does not factor in market volatility.

4. Turn to tools.

Unless you’re just a natural numbers-cruncher, you probably don’t enjoy tracking what you spend day-to-day. Fortunately, there are apps out there that do all of the work for you. TIAA clients can take advantage of the 360 Financial View tool, which automatically tallies how much you spend, and where. With just about 30 minutes of setup, “It’ll show you what you spent in the last year, which can be really eye-opening,” says Eweka. “You may realize that you’re spending a lot on things that don’t really make you happy, or maybe you have all of these subscriptions that you don’t use,” she says. That’s a good place to cut back first.

5. Make it a habit that’s easy to keep.

Once you have a strategy in place, try to make it as automated as possible by having the money deposited in your retirement account on a regular basis, recommends Rob Stevens, a Financial Planning Strategist at TIAA. Don’t just let it add up in your savings account, and tell yourself that when you get to a certain amount, you’ll move it into a retirement account. “You can always find away to spend that extra money if left to your own devices,” he says. “Once you’ve put the effort into freeing up the money, make sure it goes to the right place easily.”

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This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.

Advisory services are provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser.