More than half of Americans who set New Year's resolutions want to improve their finances in 2020, and if saving more money for retirement is one of your goals, recent changes on the government level may help.
At the end of 2019, Congress passed the Secure Act, which could benefit younger workers with broader access to workplace retirement plans and provide more time for their contributions to grow in the market.
As of 2020, you can contribute $19,500 to a 401(k), up from $19,000, and $6,000 for an IRA if you're under the age of 50. That might feel like a stretch goal but a study from retirement account provider Principal found that 48% of "supersavers" who get close to the annual limit earn less than $100,000.
Looking for inspiration for your retirement-related resolutions for 2020? Here are three ideas.
A powerful motivator for increasing your retirement contributions is to see how much money you'll need to retire. Grow's retirement calculator can help you figure that out.
The sooner you begin saving and investing, the easier it is to grow wealth for the future. That's thanks to the power of compound interest, which helps your money to grow faster because you earn interest on both your accumulated savings plus the interest you've already earned.
The goal of maximizing contributions to your 401(k) — and/or an IRA — is a daunting one for most workers. If you're under the age of 50, that $19,500 contribution limit works out to $750 each paycheck, assuming you're paid every other week. And you'll need to set aside about $230 every other week to max out IRA contributions this year.
If you were among the 51% of workers who got a pay increase in 2019, put that additional money toward your retirement, recommends David Desmarais, a certified public accountant and member of the personal financial planning committee of the American Institute of CPAs.
"If you got a pay increase, instead of taking the additional income in your paycheck, force yourself to live off what you were making," Desmarais says. "Over a few years, you should quickly see a meaningful increase in the amount you are putting away each year."
Even small increases, like a 1% bump in your savings rate, can add up meaningfully over time. Check to see if your 401(k) provider offers the option to automatically increase your contributions by a set percentage each year. Opting in for this feature would make for "an excellent resolution" as well, says Brooke Salvini, a certified public accountant and member of the personal financial planning committee of the American Institute of CPAs.
Nearly 36% of workers with access to a 401(k) aren't contributing anything, according to data from T. Rowe Price.
"The first and most important retirement resolution for 2020 is to enroll in your company retirement plan if you've opted out in the past or just forgotten to enroll," says Salvini.
Setting up your 401(k) can be accomplished in three easy steps, so the main hurdle is "the actual doing" for most people, Salvini says. "Providers have made the process a lot easier in recent years so you shouldn't have to spend more than a half hour, max, once you get started."
Video by Ian Wolsten
When you're deciding how much to contribute, aim to put in at least enough to get what's known as a 401(k) match. This is extra money employers put in to help workers prepare for retirement.
As of the end of 2018, 76% of employers with fewer than 1,000 workers offered some type of 401(k) match, according to T. Rowe Price. How much employers kick in varies, but the average match reached a record of 4.7% in 2019, figures from Fidelity show.
If your employer doesn't offer a 401(k), contribute to a traditional or a Roth IRA. Those accounts serve an important role for many people in saving for retirement, and you'll have more tax-advantaged options for how to invest your money.
To help you keep your resolutions past January, experts recommend striking a balance between being an engaged participant in your retirement account and avoiding obsessing about your daily account balance.
That's because this money is meant for decades down the road, during which time there will be ups and downs in the market that will cause your balance to fluctuate.
Review your account statements each quarter, but resist the urge to switch up your plan based on what the market is doing. More significant changes, like switching the funds you're investing in or the amount you're allocating to stocks versus bonds, should be considered as part of an annual review.
"Everything hums along better with a little bit of TLC and maintenance," Salvini says. Finally, to stay on track and meet your retirement goals, she recommends reviewing the following each year:
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