Catching Up On Your Retirement Savings

No matter the reason for falling behind, it's important to refocus on the future as soon as you're able to do so. Here's how to restart and gain ground.

There's a chance the past year or so put a dent in your retirement savings plans. You or a spouse may have dealt with a job loss or furlough, the suspension of an employer match in your retirement plan or your own choice to postpone long-term savings to free up cash flow.

Regardless of the reason, it's important to refocus on retirement savings as soon as you're able to. Remember, the reward is two-fold: Saving for retirement helps you work toward a comfortable future while helping to reduce your taxable income today. Here's how to begin to catch up.

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Put extra cash to work

Receiving a tax refund or other one-time windfall? How you put that money to work today can enable you to save more tomorrow. If you're carrying credit card or other short-term debt, paying that off can free up your future paychecks to contribute to tax advantage retirement accounts.

Already actively getting your debt situation under control? Then use the money to bolster your emergency fund, so you won't have to take on debt for an unexpected expense.

Start a new job on the right foot

You may be tempted to hang onto as much of your paycheck as possible, especially if you've been out of work. But if in addition to bolstering your emergency fund, you start off setting aside a good amount of retirement, you're less likely to miss it. Moreover, if your employer offers to match a portion of your contributions, save at least enough to capture all that money.

Even if you begin your new job in the middle of the year, you may be eligible for a full match based on your annual salary, depending on how your employer deposits those funds. For example, if your employer provides matching funds up to 4% of your $60,000 salary and you start working in June, contributing $2,400 into the plan during the remainder of the year (if you are able) may mean you capture the entire match, says Shelly-Ann Eweka, Senior Director, Advice & Financial Planning Strategy at TIAA.

Consider an IRA

Putting money into an individual retirement account (IRA) is another way for you to catch up on savings, especially if you do not have access to a retirement plan at work. If you do have access to a retirement plan at work, at least be sure you contribute enough to your workplace plan to take advantage of any employer match before funding an IRA.

Roth IRAs carry some additional features: Withdrawals are tax-free when you turn 59 ½, and you can withdraw your contributions any time.

Saving in a Traditional IRA can help provide upfront tax savings, especially if you don't have access to a workplace retirement plan or aren't a high earner.

"If you miss a year of saving for retirement at your job, you can't get that year back," notes Eweka. "That's where making additional contributions to an IRA can help bridge the gap."

Take advantage of catch-up contributions

If you're over 50, you're eligible to make "catch-up" contributions of $6,500 a year into a workplace retirement plan, such as a 403(b). That's on top of the $19,500 annual contribution limit for all savers. Taking advantage of catch-up contributions can help you bulk up your retirement savings plan in the critical years before retirement.

Consider funding a health savings account

Healthcare may be one of your biggest retirement expenses. A health savings account (HSA) lets you put aside money for qualified medical expenses and is available if you choose a high-deductible healthcare plan. These plans can help you save for immediate medical expenses and also build a nest egg to handle healthcare costs in retirement. In 2021, individuals can save as much as $3,600 a year into these plans, and families can put away $7,200.

HSAs offer a triple tax benefit. The amount you contribute can be deducted from your taxes for that year, and many employers offer to contribute to your account. Unlike a flexible savings account, unused money in an HSA can roll over year after year. Your HSA money can be invested and will grow tax-free to help fund future health costs. The plans also offer some flexibility in how you use the funds. When you turn 64, you can withdraw money from the plan and use it for non-health expenses. Though you will pay tax on those contributions and earnings, you won't have to pay any additional penalties.

Need to gauge where you are on your retirement savings path? TIAA's Retirement Checkup toolOpens in a new window can help you see how well you're tracking to your retirement goal.

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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.