Give Your Retirement Fund a Raise

Try these painless ways to boost your savings rate.


Now that economy is improving, we may see some raises again in 2012. Any increase will be welcome after the long drought for the past few years. This is also the perfect time to give your future self a raise by increasing your retirement fund contributions. It has been a tough few years, but the positive side effect is that we all should have learned how to live frugally and to spend less. Here are some painless ways to boost your savings rate:

[See The 10 Best Places to Retire in 2012.]

Raises. It shouldn’t be too difficult to continue living with the same paycheck while sending the pay raise to your retirement fund. Many of us are not maximizing the benefit of our company 401(k) matching program. Companies typically match 3 to 6 percent of your contributions to the 401(k) plan. This is a guaranteed gain on your investment and you need to take advantage of it. If you are leaving any of those matching funds on the table, you should send all your pay raises to the 401(k) until you get all the available matching funds.

Split the raise. Of course, we have inflation to deal with so we may not be able to send the raise in its entirety to a retirement fund. We have a respite from high gas price this winter, but I’m sure when the weather is nicer we will see higher prices again. If you need more money due to inflation, then perhaps you can split your raise with the retirement fund. You can increase your retirement account contributions by 50 percent of the raise and use the rest to help pay bills.

[See How to Get the Saver’s Credit.]

Max out your contribution. Even if you are already receiving the maximum match amount from your employer, there are other options to increase your retirement savings. For example, you can contribute to a Roth IRA plan or add more to your 401(k) until you max it out. For 2012, the maximum 401(k) contribution is $17,000. That may seem like a big number now, but we will need this money during retirement.

Bonus. Many companies did very well in 2011 and many of us will be getting bonuses in January. You can also share some of this bonus with your retirement fund. Many 401(k) plans now have the option to set your contribution according to the source of income. For example, you can contribute 8 percent of your regular paycheck and 50 percent of your bonus to your retirement account. The bonus will go a long way toward maxing out your 401(k) contribution. If you set up the auto deduction now, you will see a smaller check in the mail, but you shouldn’t miss it that much. It is a bonus and we can’t count on having one every year.

[See How to Maximize the Higher 401(k) Contribution Limit.]

It might take a few years, but eventually you should be able to max out your 401(k). If you don’t see the extra money in your bank account, you won’t miss it much. Make retirement saving automatic. That’s the easiest way to build your nest egg. Your future self will thank you for it.

Joe Udo is planning an exit strategy from his corporate job by reducing expenses and increasing passive income. He blogs about his journey to early retirement at Retire by 40.