…in Just 8 Months!
Our goal for this site is simple: through earning, saving and wise spending, help you put an extra $10,000 in your pocket each year. (Thus the name: “10KaYear.”) Well, we reached a little milestone of our own already in 2014, and we want to tell you all about it. Here, then, is “How to Add $10K to Your Retirement…in Just 8 Months!”
Before we dive in, the disclosures: Your Experience May Vary. Also, past performance not indicative of future results. Consult an investment advisor and/or a registered professional – we are neither of those. Also, you NEED to understand the basics of your own family budget and the vagaries of your own situation.
Now, a photo!
Pretty cool, eh? But it didn’t happen overnight, and that’s likely the biggest, toughest, scariest part of all this SAVE FOR RETIREMENT OR ELSE YOU’LL LIVE IN A CARDBOARD BOX stuff.
It…takes…planning. And thinking.
Let’s start with the planning part.
I started a contract communications position last November, and, because the company I worked for used another service to handle payroll, I didn’t have to worry about those scary payroll tax things. (I’ve done that before and it’s a pain.) This arrangement had an advantage to it – and this isn’t the first time this has happened to me: access to a 401(k) plan.
You normally have to wait it out a little bit; in our case, the waiting period coincided with the beginning of a new year. This will make it easy for tax purposes.
Once we were eligible, we decided to max out as much as we could, and we used a devil-may-care attitude toward the annual plan limits.
Follow me closely here because the IRS is likely watching and we don’t mean a devil-may-care attitude toward taxes.
Each year, the IRS publishes limits for contributions to your retirement accounts. [ANOTHER DISCLAIMER – WE’RE NOT GIVING LEGAL OR TAX ADVICE HERE. CONSULT A PROFESSIONAL.] The IRS Guidance is at this link. We wanted to come up with a number that was the most we could handle out of our paycheck, but we also had to be mindful of the fact that we could max out at some point in the year, meaning no more contributions.
$17,500 is the magic number. Could we afford it?
Well, maybe. Maybe not. On an every-other-week paycheck basis, we were looking at 26 paychecks – IF we worked the entire year. Considering that wasn’t a given, we, instead, worked out a percentage of each check that wouldn’t break the bank and allowed us the chance to save as much as possible in as short a period of time as we could stomach.
Using some math tweaks so you can’t totally guess our hourly rate, and an adjusted hourly rate so that, even if you DID guess, it wouldn’t totally matter…
We saved 25% of every check.
Here’s where the thinking came in: we knew that working the entire year at this job was not a given. So we also had to be prepared that we might, indeed, fall short of our goal.
We also were lucky that the payroll provider didn’t set a maximum on how much we could put into the 401(k).
AND…this is key…we were prepared to “set it and forget it.”
There are tax advantages to this approach, sure. And the other approaches – such as an IRA or a Roth IRA – those have tax advantages, too – and we have those accounts as well; the plan is that we’ll take additional checks from contract work, consulting work, and other “gigs” and roll a chunk over into whatever account makes the most sense.
What about the employer match?
No such luck here – the payroll people didn’t do the employer match thing. Downside of contracting. But Mrs. Dave’s employer DOES do a match, and we max that out to take advantage. (It’s one of those ten tips we shared in last week’s post.)
However, if you work for yourself, consider at least looking into the SIMPLE plan. IRS tells you more at this link.
How to Add 10K to Your Retirement…in Just Eight Months?
In our case, this is a rather aggressive strategy – and it may not make a ton of sense for you. However, if you think and plan, you can likely get to any goal you want to.
What about you? Have you tried something like this? Had any success? Let us know in the comments! Happy saving!