If you've been struggling to steadily fund your retirement savings plan in recent months, well, there may be a reason for it. Inflation has been surging for well over a year now. And it doesn't seem to be slowing down at the pace we'd like it to.
In January, the Consumer Price Index rose 0.5% compared to the month of December. That's a pretty sizable month-over-month increase. And when we dig into the index, we see that a lot of essential costs -- notably, groceries -- are still up.
Now it's very important to sock away money in a retirement savings plan. But if given the choice between doing that and putting food on the table, you're obviously going to opt for the latter.
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Iinflation will slow down eventually, thereby allowing you to ramp up on retirement plan contributions. But for now, you may be stressed out over the fact that you're not able to pump as much money into your retirement plan as you'd like. One strategy, however, could allow your savings to grow quite nicely even if you're limited on what you can contribute out of your own paychecks due to inflation.
Free money for retirement could go a long way
If you're saving for retirement in a 401(k) plan, you may not be able to get anywhere close to maxing out based on the way inflation is surging. But if you're able to contribute just enough to claim your full 401(k) match, you can compensate for the fact that your savings rate may not be what you want it to be.
Many companies that sponsor 401(k)s also match worker contributions to some degree. So if you can manage to eke out enough of a contribution to claim your employer match in full, it'll give your 401(k) a solid chance to grow this year even if inflation makes it difficult to increase your savings rate.
Plus, when you snag free money from your employer in your 401(k), that's money you get to invest. So, let's say you manage to score a $3,000 match this year, and you leave it invested in your 401(k) for the next three decades. If you plan delivers an average annual 8% return, which is a bit below the stock market's average, that $3,000 will have grown into a little more than $30,000 over time. That's not a small amount of money by any means.
Inflation is apt to cool off -- eventually
If you're beyond frustrated by the fact that inflation continues to be such a problem, you're no doubt in good company. And at some point, inflation levels are apt to shrink.
But until that happens -- which could be many more months -- it's important to do what you can to continue saving for retirement. And if you can't pump as much of your own money into your savings as you'd like to, then you can at least do try to ensure that your employer funds your 401(k) as generously as possible.
