Carrie Schwab Pomerantz
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BY CARRIE SCHWAB-POMERANTZ

RELEASE: WEDNESDAY, FEBRUARY 27, 2014

Need to Put Retirement Savings on the Fast Track?

(SET ITAL) Dear Carrie: I'm facing my 50th birthday and am embarrassed (and a bit panicked) that I've saved very little for retirement. I have a 401(k), but there's not much in it. What should I do? Is it hopeless? -- A Reader (END ITAL)

Dear Reader: Your situation isn't hopeless -- nor is it uncommon -- but it certainly should be a wake-up call. Ideally, people should begin thinking about retirement with their first paychecks, but the reality is that many don't start to seriously save (or panic) until much later.

In fact, the 2013 Retirement Confidence Survey, published by the Employee Benefit Research Institute, notes that more than half the people surveyed had less than $25,000 in total savings. In today's economy, that's not going to go very far.

Obviously, for anyone in your situation, saving now has to be your middle name. But it's not just about putting away extra dollars. There are tax-advantaged ways to save that can help you get further faster.

MAKE YOUR 401(K) WORK ITS HARDEST

Since you have a 401(k), this should be your workhorse. In my opinion, everyone -- no matter his or her age or circumstances -- should contribute enough to at least capture any company match if that's available to them. That automatically puts extra dollars in your pocket. In a situation like yours, I'd go a step further and try to contribute the maximum allowed.

The IRS has set the 2014 limit at $17,500 plus an extra $5,500 once you turn 50 for a total potential savings of $23,000 a year. Your employer may limit your contributions to a percentage of your gross salary, so first find out how much your specific 401(k) plan allows, and then go for the max.

Yes, it will be a chunk of money, but if you can -- do it. Contributions to a traditional 401(k) are generally taken out of your paycheck on a pretax basis, which reduces your taxable income. (With a Roth 401(k), contributions are made with after-tax dollars, but any earnings are tax-free.) And since the money is taken out of your paycheck automatically, once you adjust to the monthly difference, it won't seem like such a hit.

Plus, this money can grow tax-deferred until you withdraw it. So don't let it sit idle. Make sure it's invested across a mix of stocks, bonds and cash that matches your feelings about risk. If you're unsure, get some investing help, either through your plan or an independent financial adviser.


Carrie Schwab Pomerantz

Carrie Schwab Pomerantz is a Motley Fool contributor.

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