5 Ways to Fast-Forward Your Retirement Savings

While most of us dream of a comfortable retirement, very few invest enough make those dreams a reality – or don’t invest anything at all – due to a lack of money available to do so. There are ways that you can fast-forward your retirement savings, either to make your portfolio larger than it is now, or to even get one started.

retirement savings image

1. Investing windfalls

One of the best ways to find extra money for retirement savings is by investing windfalls of cash. Nearly everyone gets some sort of a windfall at least occasionally during a given year. It could be in the form of an income tax refund, a work bonus, a large commission check, or even the sale of personal items.

By putting the windfall into your retirement plan, instead of using it for other purposes, you can often add thousand dollars to your portfolio in a single event. If you do this with one windfall each year, your retirement portfolio will grow much faster and you’ll be well on your way to becoming rich.

This will require discipline to avoid spending the windfall on some other area of life. Part of the problem here is that when you know that a windfall is coming, you might start planning on where to spend it before you even get it. Instead of spending it, try investing it in your retirement portfolio instead.

2. Extra income from side work

If you really need to get your retirement savings into high gear you may have to be more purposeful in making it happen. That may require creating additional income streams. You can do this with a part-time job, contract work or even an ongoing side business. Any of these can generate income over and above your regular paycheck, that will produce the money you need to fund your retirement savings on an ongoing basis.

An important element should you go this route, will be to make sure that the extra income does in fact make it to your retirement savings. This may be easy to do with a part-time job where you can use direct deposit. But if the money is from contract work or a side business, you’ll have to get into the habit of putting any extra money into your retirement savings.

The last thing you want to do with this option is to get in the habit of simply adding the extra income to your regular budget. If you do, the extra income will simply disappear and you’ll have nothing to show for it later on.

3. Redirecting the cash flow from paid loans

This is an option that few people think about, but it’s a perfect way to save money for retirement. If you have a loan you’ve recently paid off, your budget is already prepared for the monthly deduction. The trick is to be sure that the money you USED to pay on the loan instead makes its way into your retirement account each and every month.

For example, let’s say you recently paid off a car loan on which you were paying $300 per month. The loan is now paid, so instead of making a monthly payment to a car lender, you instead “make the payment” to your retirement plan. If you have a 401(k), 403(b) or 457 then you can simply increase your payroll contributions by $300 per month. If you don’t have an employer plan then have the money directed to a Roth IRA!

The more automatic you can make the payment process, the easier it will be to go from paying the loan to funding your retirement account.

4. Making across the board budget cuts and investing the savings

Another option is to carve out more room in your budget to find more money for retirement. If you can cut your monthly expenses by just 5%, you can redirect money into your retirement on a consistent basis.

If your budget is $4,000 per month, and you decide to cut it by 5%, that will leave you an extra $200 to put into your retirement account each month. That will mean that an extra $2,400 is going into your retirement account each year.

5. Direct pay increases into your retirement account

This is probably the most pain-free way of increasing your retirement portfolio. You simply take any raise from your boss or other pay increase you receive, and instead of adding the extra to your budget, you direct it into your retirement account.

Let’s say that you get a 3% pay increase. If you earn $5,000 per month prior to the raise, that will give you an extra $150 per month – or $1,800 per year – to put into your retirement savings.

This method is even better by the fact that a) contribution increases will be even more significant if they are done in multiple years, and b) since the contributions are tax-deferred, you’ll be able to invest the entire increase without tax consequences.

Statistics clearly show that most people are well beyond when it comes to saving for retirement. However, with a little discipline and creativity, you can boost your retirement savings in a matter of a few easy steps!

Can you think of other ways that you can increase your retirement contributions?

Picture by FreeDigitalPhotos

About the Author

By , on Feb 8, 2013
Kevin
Kevin Mercadante is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids and can be followed on Twitter at @OutOfYourRut.

How to Become Rich e-Course

Budgeting 101

{28 Comments}

  1. The 2% social security tax hike definitely took a damper. I think I lost $50 bucks out of every paycheck, and then I had to increase my FSA this year due to higher medical expenses, which took away another $50 bucks.

  2. Nice list. I think that if we can avoid lifestyle inflation, and keep our spending patterns the same regardless of windfalls, raises, side income, etc – we can make great progress on accelerating retirement!

  3. I put half of every raise into my retirement savings… even when taxes go up and it makes my paycheck smaller :(

    • Kevin says:

      Hi Lance–You’ll make it back on the tax deferral though.

      Your comment about taxes going up got me to thinking…we have the 2% payroll tax hike on Social Security taxes taking effect this year. That might put a damper on that strategy for this year. : (

  4. Eddie says:

    Great points Andy.
    My favorite is #2.

  5. Investing a cash windfall is a great tip. I’ve been doing it for years, every time i get a tax refund or bonus at work it goes straight into my retirement fund. Hopefully over the years it will make a big difference.

  6. Laurie says:

    Love these, Kevin – thank you! We were just talking about ways to increase our retirement savings as we’re feeling a little behind. You’ve left us with some great strategies!

  7. The best thing I’ve done is to reduce spending. It is the only thing I’ve found that has two massive benefits: 1) It increases the amount you can save because you have more left over each month, and 2) It decreases the amount you need to retire on because you’re living a simpler life with less expenses, therefore needing a smaller nest egg to retire.

    In a really extreme example, if you can live on $10,000 per year, you need only about $300,000 to retire on quite safely taking into account inflation and investment risk.

    If you have to spend $100,000 per year then you need something in the order of $3 million.

    For me, living on a small percentage of my income is going to be the number one factor that gets me to retirement pronto. Not for everyone of course.

    ps. I’m not trying to live on $10,000 PA!

    • Kevin says:

      Hi James, what you’ve touched on here is huge. If you will “need” $100,000 per year in retirement, then you will also “need” about $2.5 million. But if you can chop that income down to $30,000, you will only need about $750,000.

      It’s often forgotten too that there will be Social Security income, and I’d guess most retirees will continue to have at least some earned income continuing in the early years of retirement.

  8. We’ve just finished paying down a lot of consumer debt and don’t intend to let go now! So yes we will be redirecting money – and adding any spare – into investment.

  9. Thad says:

    I especially like number 3. When you are already adjusted to money not being available to spend is the perfect time to redirect that into investments. Great post!

  10. I’ve done everything but number 3 on that list. Windfalls have been a big one for me. Gifts, tax returns, bonuses, prizes, even travel reimbursement checks all get put straight into the brokerage account.

    I’ve been simultaneously trimming and growing my budget over the last few years. That sounds crazy, but every time I relocate to a higher cost of living area, my budget goes up. Then I have to work on paring it back down as I get settled in and my spending habits start to stabilize.

  11. Pauline says:

    I try to put any unexpected income towards savings, since I am already retired from the corporate world I don’t specifically fund retirement accounts. I had roommates for a while and was putting that money into savings too since I was paying the full rent before, it was extra money I didn’t need to live.

  12. We always re-invest our tax return every year instead of splurging and spending on something like a trip, clothes, etc like some do. What we are going to do is pay off the mortgage in the next month and then start focusing on fast forwarding our retirement savings.

    • Kevin says:

      Wow, do you want to retire in 10 years? Redirect the mortgage payments into retirement when it’s paid off. You’ll early retire in no time!

  13. I love this list! I’ve found that even small amounts of money can do big things when you’re disciplined about setting them aside.

  14. Great post. I like all of your ideas for increasing retirement investing. However, one of them sticks out to me the most: Number 3. The key to building savings of any kind is to spend less than you make. A great way to spend less then you make is to GET RID OF DEBT. I have done this in my life and it has made all the difference in the world. There is nothing like taking the $500 I used to spend in car payments and putting it towards my future. Thanks for your insight!

  15. All great points, I agree that #5 is the least painful when it comes to sacrifices. Most people will find that their current lifestyle has been sustainable for so long that an increase in salary can easily be contributed to their retirement accounts.

    • Kevin says:

      I agree. At the opposite end of the spectrum, I think cutting spending to fund retirement would be the most difficult. I’d try all the others first!

  16. Some great tips here, it’s so tempting when you get a windfall of cash to just spend it. I,ll think again next time.

    • Kevin says:

      Spending money is alway fun, but after you do the money is gone. If you invest it in a retirement fund you get to keep it and grow it. That’s really an extension of the “pay yourself first” concept.

  17. Michelle says:

    These are all great ways to help your retirement savings! I’m all about extra income of course :)

  18. Alex says:

    Great advice! Off the top of my head I can’t think of any other methods to add. I think you got the basics!

    • Kevin says:

      Hi Alex–I thought of a few more, such as investing the proceeds from a garage sale, from a period of overtime pay (does anyone even get that anymore???) or even from gift money. They’re all small and sporadic, but if you do it consistently it can add up over time.

  19. These are all great ways to help bump up your retirement investing to get it to grow further. I like #3 particularly as you’ve already been spending the money and thus would not “feel” it if it were to simply be redirected elsewhere. I know some may not say they could afford to do #5, but I’ve also seen many take half of the raise and put into the 401k and that is still better than nothing.

    • Kevin says:

      Hi John–Half of a raise is an excellent strategy too, especially if you can do it every year. It means that you’ll have something other than lifestyle inflation to show for your annual pay hikes!

Leave a Reply

Your email address will not be published. Required fields are marked *

Disclaimer and Stuff

The articles are written by personal finance enthusiasts (not certified professionals) based on their personal experience. What works for them may or may not work for you, and you should always consult a financial advisor before making important financial decisions.

In accordance with FTC guidelines, we disclose that we have a financial relationship with companies mentioned in this website. This may include receiving access to free products and services for product and service reviews and giveaways.

Any references to third party products, rates, or websites are subject to change without notice. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.

For additional information, please review our legal disclaimers and privacy policy.