5 Little-Known Strategies to Boost Your Retirement Nest Egg

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A bird nest full of American money.
Alamy

By Robert Berger

Saving for retirement is no easy task. Fortunately, we have several tools that can help us reach our retirement goals. Here are five ways to boost your retirement nest egg that you may be missing.

1. Maintain Your Asset Allocation

When you begin investing, you typically select an asset allocation that suits your risk tolerance and investment goals. However, your investments begin to deviate from that plan as soon as the markets open and the value of your investments changes. Retirement savers need to periodically shift back to that target asset allocation to avoid taking on too much or too little risk. Particularly given the rise in equity values over the past several years, a failure to rebalance can result in investments that deviate significantly from your asset allocation plan. By periodically rebalancing, an investor effectively sells high and buys low.

2. Open a Roth IRA

Doing at least some of your retirement saving in an after-tax Roth account will add tax diversification to your portfolio and help reduce your tax bill in retirement because you are pre-paying the tax now. As an added bonus, Roth IRAs do not have required minimum distributions in retirement. For those whose income and workplace retirement plan disqualifies them from contributing to a Roth IRA, there is an alternative. A backdoor Roth IRA allows you to contribute after-tax dollars to an IRA, and then immediately convert it to a Roth IRA. The conversion involves after-tax dollars, so there are no taxes due from the conversion. The result is an investment that grows tax-free.

3. Convert an IRA to a Roth Later

Another important retirement account strategy involves converting pre-tax retirement account balances into a Roth IRA. Unlike a backdoor Roth involving only after-tax dollars, conversion of pre-tax dollars to a Roth IRA will trigger taxes. So, it's important to do the conversion in a year when you have a particularly low income. Individuals in higher tax brackets during their working years often get a big tax break by contributing pre-tax dollars to traditional retirement plans.

However, their incomes may fall substantially as they near or enter retirement, which lowers their marginal tax rates. During these years of lower tax rates, strategic conversions of pre-tax retirement dollars to Roth accounts can significantly minimize the taxes that will be due later in retirement.

4. Hedge Your Bets on Your Future Tax Rate

Many people wonder whether it's better to save for retirement in a pre-tax 401(k) or an after-tax Roth account. A logical way to decide is to compare your current tax rate to your best guess of your tax rate in retirement and choose whichever tax treatment results in lower taxes. As you might imagine, predicting future tax rates is a lot like trying to predict the stock market. Another option is to hedge your bets.

The IRS permits contributions to both Roth and traditional 401(k) and IRA accounts. It's not an all or nothing proposition. The contribution limits for 401(k) and IRAs don't change just because you open multiple accounts, but you can split your contributions between both Roth and traditional retirement savings options. Then no matter what happens to your tax rate, you will have options in retirement.

5. Start a Business

One of the biggest surprises when I started my online business was the retirement benefit. Unlike 401(k)s and IRAs, retirement plans for the self-employed offer significantly higher contribution limits. Both SEP IRA and individual 401(k) plans enable a business owner with sufficient earnings to contribute up to $52,000 in 2014, and the limit adjusts each year to keep up with inflation. Defined benefit plans enable some small business owners to save even more.


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21 Comments

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teddrio

These are good suggestions, but are not quite of the "little known" variety. Fear of infalation worries me most.

August 05 2014 at 1:35 PM Report abuse rate up rate down Reply
toosmart4u

Social security is very much need for most Americans. Now if you are on social security and medicare thank a democrat, if you want to end these 2 fine programs vote republican. They will take care of you......

August 04 2014 at 12:20 PM Report abuse +1 rate up rate down Reply
1 reply to toosmart4u's comment
gfy.gfy

Thank them? You should be kicking them.

August 04 2014 at 3:18 PM Report abuse +1 rate up rate down Reply
tyceragab

Step 1: Create an emergency account of $1000
Step 2: List all debt SMALLEST to LARGEST, and Pay off THE SMALLEST FIRST. Then, you snowball the payment (once paid off) into the next biggest, creating a SNOWBALL EFFECT.
Step 3: Save 3-6 months of monthly expenses and at the same time, lower them! Cut car insurance to $25/month (check Insurance Panda), cut gas to less than $50/month (check Gasbuddy), get rid of cable TV (check netflix and aereo).
Step 4: Stash away 15% of income for Retirement
Step 5: Save for KIDS' college savings (at 12%, accounting for inflation rate).
Step 6: PAY OFF THE HOUSE
Step 7: Give, Invest, and Spend your Accumulated Wealth

August 04 2014 at 9:40 AM Report abuse rate up rate down Reply
jaljr1982

I'm suing the financial industry for more than a million dollars in United States District Court. If you're losing your home to the bank I'll help you keep it, if I win.

August 04 2014 at 3:20 AM Report abuse rate up rate down Reply
kolblh

Who writes this crap? Retirement for who the rich or the average Joe. My advice, the day you start your first job start saving for your retirement, even if it's a dollar a week. Investing is a list of surprises, it can only prepare you to be surprised yet again. Good Luck.

August 03 2014 at 2:35 PM Report abuse +1 rate up rate down Reply
alfredschrader

Anything you buy like gold, gems, coins, real estate, collectibles etc. is a purchase not an investment. Of course once in awhile there is an exception. Take iron for example. It's not glam like gold - it even rusts, but the numbers shine. In 2000 iron ore was 11.93 a ton. By 2013 it was 100.53 a ton or an 853% increase while recently gold fell from around $2,000 an ounce to the $1,200 range. Gold was $400 in 1984. Of course the smart money was in iron.

August 03 2014 at 4:53 AM Report abuse -3 rate up rate down Reply
1 reply to alfredschrader's comment
kolblh

And when the rainbow disappears you'll be buried under a ton of iron.

August 03 2014 at 2:37 PM Report abuse +1 rate up rate down Reply
Fionna

I loved this post. It says so much and that’s too in so this short blog post. Admire the knowledge of writer. Selecting and investing at the right fund by titrating the risk-profit balance (depending on age factor) is the secret behind growing retirement Nest Egg. Prudently investing in stocks and Index Funds can increase the egg by leaps and bounds. If you can invest in derivatives, you can earn from sliding index also. However, you should have great knowledge on investing, technicals, fundamentals, et al. Hedging the risk is a great strategy, which protects the fund from depleting. More important is not to get in any kind of debt in which you are not comfortable in. Even if you are in some kind of debt, try to pay it off before you retire. In case you are finding it tough to manage debt, ask a reputed debt consolidation company like NoMoreCreditCards.com or similar companies to consolidate or settle debt in your favor by not affecting or least affecting your credit score. Last but not the least is starting a business on the field you have expertize on. This will give you additional funds to have a great retired life.

August 03 2014 at 3:21 AM Report abuse -3 rate up rate down Reply
2 replies to Fionna's comment
gfy.gfy

Go away spammer

August 03 2014 at 10:49 AM Report abuse +1 rate up rate down Reply
kolblh

Yea? like paying your morgage, keeping the car runing, feeding the family, paying off the college loan, doctors, dentist, furnace broke, and the many many detours that effect your saving for the future. Anxiety is the gap between now and the later.

August 03 2014 at 2:46 PM Report abuse +1 rate up rate down Reply
Dan Burress

Let me tell you about the real world. I worked for Lowes for one year. We shook hands on 40 hours per week. By Christmas, I was cut to 32 hours per week, while the managers were stuffing a very large bonus into their fat bank account, and giving us a royal screw job.

We waited on customers, unloaded trucks, did inventory, and our reward was a kick in the face during the holiday season. Retire? Really?

August 02 2014 at 9:54 PM Report abuse +1 rate up rate down Reply
Dan Burress

I might be able to put a hut up in the woods and hunt anything on four legs with my homemade bow if things get any worse.

August 02 2014 at 9:47 PM Report abuse rate up rate down Reply
Dan Burress

Listen dude, millions of us are living hand to mouth. The only way we are going to retire is to quit breathing.

August 02 2014 at 9:44 PM Report abuse +1 rate up rate down Reply