Retirement Saving No-Brainer

You probably know someone whose guest bathroom is stocked with the mini shampoo, conditioner, and moisturizer bottles they’ve picked up at hotels.

While the amount they’ve saved on toiletries might not have changed their lifestyle, they’ve enjoyed the feeling of getting things for free.

In saving for retirement there are some similar “freebies”—things that you can take advantage of with almost no cost or risk. And unlike the little shampoos, these can add up to substantial gains over the long-term.

While there’s no such thing as a free lunch in investing (returns always come with a commensurate amount of risk), there are things you may be able to avail yourself of that are completely outside the market. These are ways to maximize what you’re contributing to your nest egg or help minimize current costs, such as taxes, with that don’t involve added cost or risk.

The first is when you take full advantage of your employer’s 401(k) match. If you’re not contributing the maximum your employer will match, you’re leaving money on the table. Financial planner Daniel Czulno says it’s basically a 100% return. “If you put a dollar in, they’re going to give you a dollar match. That’s pretty good. You can’t beat a 100% return.”

Of course, not every plan offers a match so check with your HR department. To take advantage of this benefit, you’ve got to contribute enough to match the full amount and that means foregoing that money in your paycheck. It requires a little discipline at first, but once it’s set up automatically, you’ll miss it less and less.

Another way to reap “free money” is by not overpaying taxes. Every dollar you can redirect back into your retirement account can (through the power of compounding) potentially grow to be many more dollars at retirement.

We can help you identify ways to reduce your tax liability. Then consult with your tax professional to ensure your eligibility for any of these strategies.

Finally, you should avoid paying self-inflicted penalties. One way people needlessly cost themselves money is by borrowing from their retirement accounts to make major purchases.

Czulno says there are two major reasons not to do this. First, “You’re getting beat with income tax and penalties and so forth,” he says.

Second, even if you have the money to pay it back, you can’t always easily replace what you take out due to limits on account contributions.

“We see people take money out and then not realize that they’re working against their annual maximum contribution,” he says. “They’ll never be able to truly replace the value that they lost there.”

Not to mention the lost opportunity cost of money taken out of the market.

A much better strategy is to save up for major purchases ahead of time and avoid the needless penalties.

One reason to regularly consult with us is to make sure you are taking full advantage of these prudent ways to increase your retirement savings.