Tough times call for tough choices. If you’ve stopped making retirement contributions to make ends meet, you’re not alone. But as soon as your financial situation allows, it’s important to get your retirement savings back on track.
You don't have to implement all of these steps, but prioritizing your efforts will maximize the results.
Cut daily expenses
Look at ways to reduce your living expenses, if you feel you simply don’t have enough cash during the month. Plug spending leaks and track your expenses to find money that you can put toward savings.
Replenish your funds
Rebuild your emergency savings fund first, if it’s been depleted. Without an emergency fund, unexpected car repairs or medical bills can lead to credit card use and short-term debt or force you to raid your retirement accounts and incur penalties. Use this calculator to determine how much you need to set aside for emergencies.
If you borrowed from an IRA, return all money to a new rollover IRA account within 60 days. After that, the money you borrowed cannot be returned and likely will be considered taxable income and may be penalized.
If you took out loans from a 401(k) or a similar plan, pay off the loans as soon as possible. Most plans require this before you can start making any new contributions.
Start contributing again
Begin making contributions through your employer's retirement plan, such as a 401(k) or 403(b) plan. Try to commit to saving enough that you get the full amount of any matching contributions offered by your employer.
Open up a traditional IRA or a Roth IRA. Once you are obtaining a full match on your employer plan, or if you do not have an employer plan, the next priority is to contribute up to the full amount allowable for the current year to a traditional IRA or a Roth IRA.
After you’ve maxed out your IRA contributions, make additional contributions to your employer’s retirement plan, up to the current year’s limit. If you’re over 50, you legally can make extra contributions to individual and employer retirement plans.
Set up an automatic payment to your IRA or a paycheck deduction to your employer plan. Treat retirement saving as an ongoing bill, rather than an optional extra.
To find out how your retirement savings are shaping up, try this nest egg calculator.